By Jeevan Thiagarajah
A recovery the books can see, but households cannot
Sri Lanka has done the hard part of stabilisation. The question now is whether it can make that recovery felt in homes before the next shock arrives.
The World Bank's October 2026 Development Update confirms the gains. The economy has grown for twelve straight quarters and is back to its 2018 size. Sri Lanka has regained upper-middle-income status, by a margin of just US$34 per person.
The IMF is more guarded, warning in September that “safeguarding macroeconomic stability in a shock-prone environment requires unwavering commitment to prudent policies.” Its October outlook has growth slowing from 5% in 2025 to 4% this year and 3.7% in 2027. The current programme ends in March, and the government told Parliament on 8 October that it is discussing a successor: a “long-term, growth-targeted” arrangement.
Below the headlines, the picture is less settled. Poverty stands at 16.9%, and two in five Sri Lankans are poor or one shock away from it; in the estates, poverty reaches 36%. Real wages remain about 12% below pre-crisis levels, and a recent survey found only one household in four earns more than it spends. And 16.1% of under-fives are underweight.
Fuel, power, weather and a global food squeeze are now bearing down on families with no buffer left, and the state is too slow to respond. The task is threefold: protect households, drive the growth that rebuilds their buffer, and stay ahead of the next shock.
How households paid for stabilisation
When the rupee was floated in March 2022, it fell from about Rs. 200 to Rs. 360 to the dollar. Inflation peaked at 69.8%; prices rose roughly 80% between the end of 2020 and the end of 2023. The minimum wage stayed at Rs. 12,500 from 2016 until 2024, and informal workers have no indexation at all. Then VAT rose from 8% to 18%, and electricity tariffs rose about 75% in 2022 and a further 65% in 2023. The state has repaired its balance sheet. Most households have not.
Four shocks, one household
- Fuel. Since 1 October, super diesel costs Rs. 528 a litre after a Rs. 50 jump, auto diesel Rs. 392 and petrol 92 Rs. 414. Auto diesel, which moves buses, lorries and fishing boats, rose only Rs. 10 because the government is absorbing about Rs. 70 a litre, a subsidy decided month by month.
- Electricity. The Petroleum Corporation has ended the fixed-price deal that supplied furnace oil and naphtha to power plants at a loss, and raised those prices by about 20%. Households already paying 8% to 25% more since April face another round.
- Weather. The Meteorology Department, citing NOAA, puts the chance of a very strong El Niño this winter at 63%. The pattern is drought, then floods, then drought: above-normal rain in October and November as the Maha crop goes in, then very dry, hot months from January to April 2027, when low reservoirs will push up the cost of power. About 550,000 hectares of paddy are at risk.
- Food. On 28 September, India's External Affairs Minister, S. Jaishankar, warned of “a major food crisis probably in the coming months,” citing grain stuck in the Black Sea, fertiliser shortages and a super El Niño: a four-part squeeze of food, fuel, fertiliser and finance on the Global South. Sri Lanka imports its wheat and much of its fertiliser.
The Gulf war also threatens the jobs and remittances of about one million Sri Lankans in West Asia. Cyclone Ditwah has already cost 643 lives and about US$4.1 billion, some 4% of GDP.
Sri Lanka is not a volcano about to erupt. It is dry tinder, waiting for a spark. The share of households unable to meet basic food needs has risen from 14% in 2024 to 20%. Bank loans against gold rose 23.6% in the first half of 2026 to Rs. 1.11 trillion, nearly half of all new personal borrowing, and the Central Bank has cut how much can be lent against gold. Families who have cut meals, pawned gold and borrowed have nothing left to give. A country with no household buffer must race ahead.
The money is there. Delivery is not.
By mid-2026, the government had spent only about 8% of the Rs. 500 billion allocated for Ditwah reconstruction, and 16.7% of the capital budget. The resulting Rs. 9.5 billion surplus, earned by not repairing roads, homes and tanks that Parliament funded, is not a success. It is a delay, paid for by families still living with cyclone damage. With primary spending capped at 13% of GDP, Sri Lanka must spend what it has, faster.
Investors meet the same slow state
The US State Department says the Board of Investment “struggles to function as a one-stop shop due to fragmented authority,” and that only about 3% of land holdings have clear title. The BOI's own Director General says a project may need approval from more than 20 institutions, and that releasing state land takes 18 to 24 months.
A state land file passes from the Divisional Secretary to the District Land Use Committee, the Provincial Land Commissioner, the Governor, back to the Provincial Land Commissioner, and on to Colombo. In the North, the Provincial Land Commissioner has stopped land already approved by the District Land Use Committee, and Divisional Secretariats have stalled district-approved land, allegedly for corrupt reasons; one official now stands indicted before the High Court.
Lessons from India
Indian states offer models closer to our scale, though they have powers and budgets that Sri Lanka's provincial councils, unelected since 2014, lack. So each lesson names who should own it here.
- Lives saved by preparation. Odisha's 1999 super cyclone killed 9,658 people; after the state built a disaster authority, shelters and a response force, Cyclone Fani in 2019 killed 64. In Sri Lanka: the Disaster Management Centre, with evacuation powers, and district secretaries running shelters and drills.
- Speed by law. Telangana's TS-iPASS sets clearance deadlines of 1 to 30 days, and approval is deemed granted if a department misses one. In Sri Lanka: an approvals act binding every agency, from land commissioners to local authorities.
- Women as producers. Kerala's Kudumbashree turns women's groups into producers with their own brands. In Sri Lanka: the Northern Province's 1,090 Women Rural Development Societies, as producer companies in chilli, onion and palmyrah.
The North has its own assets: Jaffna's airport, a revived Kankesanthurai harbour, 1,740 minor tanks that could bank water for the dry months ahead, and 73,681 women-headed households who need market links, not handouts.
What to do, and when
A state that has spent 8% of the Ditwah money must first fix delivery itself. In the next 90 days:
- Pay out the Ditwah money through the districts. A small delivery unit, standing framework contracts, and spending authority for district secretaries within published limits, with progress published weekly. The test: how much of the Rs. 500 billion is spent by January.
- Fix the land chain by circular. One binding circular on who has the final say at each stage, objections in writing within a deadline, and a public register of every file. The test: how many files are cleared, and how long each spent in each office.
- Target the price shocks. Replace the blanket diesel subsidy with automatic cash support through Aswesuma and GovPay, paid with every fuel or power increase, and keep registration open year-round. That protects both the poor and the buffers the IMF wants rebuilt. The test: how many households are paid within a month of each rise.
- Get ahead of the dry season. Buy wheat, fertiliser and power-plant fuel early, drawing on India's stated readiness to help on food and energy; agree a water-sharing plan between irrigation and hydropower before January; stock rice and seed; and pause auctions of pawned gold in disaster-declared districts. The test: reservoir levels and months of stock in hand on 1 January.
The first two cost almost nothing; the last two cost far less than a failed harvest met unprepared. Alongside them: evacuation powers and bilingual warnings before the November rains, and Bureau of Foreign Employment desks, on Kerala's NORKA model, for Gulf workers who may need to come home.
Over the next two years, the agenda can widen: a growth plan built on exports, tourism and the North's harbour and airport; elected provincial councils with a share of the capital budget; state land allocated within six months; secure title for estate families; an independent minimum wage review linked to inflation; a published fuel and power pricing rule; nutrition support where under-five underweight rates are highest; and a shift of tax from VAT on essentials to income and property.
Accountability: who answers when targets slip
Plans fail in Sri Lanka less for want of ideas than for want of consequences. The Resilience and Accountability Framework published in June 2026 proposes legislated targets overseen by an independent commission appointed by Parliament. It needs every allocation, contract and completion rate on a public district dashboard, updated monthly; timely, independent household surveys, with penalties for suppressing data; and loss of office, with due process, for repeated unexplained failure.
Andhra Pradesh's Real Time Governance Society links 55 databases from 41 departments and calls citizens to ask whether pensions, power and welfare reached them; the Chief Minister reviews district collectors against those scores monthly. The Jump Team proposed by the then Governor of the Northern Province, was built on the same idea. It remains an idea waiting to be implemented.
The cost of waiting
A recovery most families cannot feel will not survive a season of dearer fuel and power, floods followed by drought, and a world short of grain and fertiliser. Any successor IMF programme should be built around that reality. What is missing is speed, and a system that makes someone answer when speed fails. Protect, grow, stay ahead: that is the race Sri Lanka must run. Recovery will be complete when the typical family, in every community, ends each month with something left over.
