BUSINESS SENTIMENT
CONFIDENCE SHATTERED BY NATURE
The biz barometer stumbles amid climate disruption and its massive aftershocks
Sri Lanka’s fragile economic recovery suffered a major setback with Cyclone Ditwah – the most destructive natural disaster to strike the island since the 2004 tsunami. And just as some signs of stabilisation were emerging, the widespread destruction has pushed recovery timelines further out.
Officials estimate reconstruction costs of up to US$ 7 billion while analysts expect GDP growth to slow to around three percent in 2026. And that, we feel, could be a best case scenario.
UNDP Resident Representative in Sri Lanka Azusa Kubota notes that Ditwah struck regions already weakened by years of economic strain, warning that a recovery will be particularly slow and costly where severe flooding overlaps with long-standing vulnerabilities.
As rebuilding needs escalate, the government has requested 200 million dollars in emergency assistance from the IMF – an appeal that is currently under review. However, Kubota warns that Sri Lanka cannot afford additional debt for reconstruction.
A First Capital report following the disaster highlights the broad economic fallout: private consumption – which accounts for nearly 68 percent of GDP – is expected to weaken.
Meanwhile, Moody’s warns that the cyclone could stall Sri Lanka’s post-default fiscal recovery, citing major infrastructure damage and weak capacity to manage climate risks.
THE INDEX If these developments are any indication, the outcome of latest LMD-PEPPERCUBE Business Confidence Index (BCI) is telling – the index plummeted by 25 basis points from 189 in November to 164 in December.
As for key benchmarks, the barometer is now 39 points below its historic median of 125 and is at its lowest point in the last 12 months (164) – and it is 29 points shy of the 12 month average of 193. Comparatively, the BCI stood at 174 in December 2025 – 15 notches higher than the current reading.
According to PepperCube Consultants, the BCI reflects a country grappling with the operational, economic and emotional aftermath of a large-scale climate disaster.
It cautions that sustaining confidence will require targeted policies centred on human capital development, improved operational efficiency and a clear strategy to address broader socioeconomic challenges.
PROJECTIONS The cyclone has certainly delivered a blow to business confidence, following what was a brief and fragile resurgence in sentiment over the past 12 months.
Having reached a record high in June, the BCI retreated, then rebounded to another peak in October and has eventually declined once more.
In a macroeconomic environment shaped by both global uncertainties and an elevation of climate risk, the barometer of business confidence may continue to reflect volatility in the months ahead – despite the likelihood that Budget 2026 may have helped sustain the outlook to some degree.
Against this backdrop, the president has underscored that existing debt sustainability frameworks are ill-suited to climate vulnerable nations, noting that Sri Lanka is confronting a crisis largely beyond its control.
Sri Lanka it seems, is reeling back to being a nation on edge.
