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Sri Lanka Faces Triple Crisis: Flood Devastation, Economic Strain, and Iran War Impact

Sri Lanka faces a triple crisis after Cyclone Ditwah's devastating floods, ongoing economic struggles, and the impact of the Iran war on fuel prices and foreign remittances, challenging recovery efforts and government stability.

·6 min read
AFP via Getty Images Drivers wait in a queue to refuel their auto rickshaws at a fuel station in Biyagama on the outskirts of Colombo on March 15, 2026.

Flood Devastation in Sri Lanka

After floods devastated their village, Indrani Ravichandran and her family have returned to their home, residing in the only section that remains intact.

They are among the many victims of Cyclone Ditwah, which struck the country last November with unprecedented force.

The storm's scale and destruction were unparalleled. Over a span of just three days, parts of Sri Lanka's central uplands experienced up to 500mm of rainfall — approximately the average for two months — resulting in catastrophic floods and landslides that destroyed homes, businesses, and entire communities.

The human toll was severe, with 643 fatalities and 173 individuals reported missing.

Indrani recounted how she and her family fled for their lives in darkness as floodwaters swept away parts of their house in Kudugalhena village, Kandy district.

"The water level rose swiftly. We rushed out and hardly had any time to pick up anything from the house.
"It was pitch dark and the rain was lashing down, the slopes were slippery and we were also terrified of treading on any poisonous animals as we ran. But we were lucky to survive."
"It was the first time in 30 years we witnessed such ferocious floods," Indrani's husband Ravichandran added.

The floods reportedly caused more destruction in Sri Lanka than the 2004 tsunami, one of the deadliest natural disasters on record.

"Compared to the 2004 tsunami, the loss of human lives was not that much. But in terms of damage to infrastructure, Ditwah caused even more harm than the tsunami," Dr Ganeshan Wignaraja, a visiting senior fellow at ODI Global Institute in London, told the BBC.
BBC/ Ranjan Arun Prasad Ravichandran, wearing a cap, green shirt, jeans and blue slip on shoes, stands next to his wife Indrani, wearing a white dress with blue lines, stand outside a building partly made from corrugated iron
Indrani and Ravichandran were lucky to escape - now they're back in what's left of their house
AFP via A worker removes mud accumulated around buses near a landslide-affected area in the aftermath of Cyclone Ditwah, in Maspanna on December 13, 2025.
Cyclone Ditwah swept away houses and entombed vehicles in metres of mud

'A Triple Shock' for Sri Lanka

The ongoing war between the US and Israel against Iran, and its impact on the global economy, has compounded Sri Lanka's challenges, arriving at a time when the country is still recovering from devastating floods and an unprecedented economic crisis that began in 2022.

This picturesque South Asian island, once lauded for its economic progress and high human development rankings, now faces severe difficulties.

"It's a triple shock. First, the devastating floods late last year, now soaring fuel prices and then there's an impending drought in some areas," Wignaraja said.

In recent weeks, the government has implemented fuel rationing and price increases, introduced a four-day workweek, raised electricity tariffs by up to 40%, and imposed water and power cuts to manage dwindling resources.

Shortages of fuel and cooking gas have triggered panic buying nationwide, evoking memories of 2022 when Sri Lanka exhausted its foreign currency reserves and defaulted on foreign debt. That crisis led to shortages of essential goods such as cooking gas, medicine, and food, alongside power cuts lasting up to 13 hours daily.

Widespread protests during that period resulted in the ousting of then-President Gotabaya Rajapaksa.

Currently, concerns are mounting that the country may face another economic crisis.

The cash-strapped government has taken several measures to stabilize the economy, including removing electricity subsidies and increasing income tax rates to as high as 36%.

Progress appeared to be underway until Cyclone Ditwah struck.

The World Bank reported that the cyclone, among the most intense and destructive in recent Sri Lankan history, severely affected nearly two million people and 500,000 families across all 25 districts, disrupting livelihoods, essential services, and the broader economy.

The United Nations and other agencies estimate the total damage at approximately $4 billion, equivalent to 4% of Sri Lanka's GDP.

President Anura Kumara Dissanayake described the event as the country's worst-ever economic disaster. Following the calamity, he announced extensive financial assistance for those who lost loved ones, properties, and businesses.

Indrani's family reported receiving the government's promised 50,000 rupees ($325; £240) to repair the remaining part of their house. Additional financial aid was provided for families with young children.

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The government also pledged up to five million rupees for homes that were completely destroyed and about one million rupees for families of those who died.

However, months after the cyclone, more than 165,000 people remain displaced, living with relatives, host families, or in temporary shelters while awaiting government assistance for alternative housing and livelihoods.

The economic strain caused by the Iran war has further darkened their prospects.

'Friend Across the Sea'

The government has received only about one-fifth of the funds required for reconstruction and rehabilitation, approximately $750 million in total.

Despite the cyclone's devastation surpassing that of the 2004 tsunami, international aid was not immediately forthcoming. In 2004, donors pledged billions of dollars in response to the disaster, but this time the response was subdued.

Sri Lanka's closest neighbor, India, was the only country to respond promptly. It launched a rapid humanitarian assistance and relief mission called Operation Sagar Bandhu, meaning "friend across the sea" in Hindi.

India deployed two warships, including an aircraft carrier, for relief operations. Indian Air Force helicopters conducted multiple sorties, rescuing hundreds of people, including foreign nationals.

Indian rescue teams established field hospitals, assisted in restoring essential infrastructure, and delivered over 1,000 tonnes of critical supplies. India also provided $450 million in grants and aid, making it the largest contributor.

In contrast, China, a major investor and long-standing ally of Sri Lanka, offered minimal support, providing less than $2 million in aid and approximately 100 tonnes of supplies.

In January, the Sri Lankan government formally requested assistance from Beijing to rebuild key infrastructure damaged by Cyclone Ditwah.

The government states it has provided relief to most residents whose houses were partially damaged, enabling them to carry out repairs.

However, it acknowledges delays in compensating families who lost entire homes or businesses.

"We are in the process of identifying suitable and safe land to build new houses. Once the areas are identified, the government will provide the aid," said KG Dharmathilake, a senior official in the disaster management division.

Officials emphasize that rather than rushing relief efforts, the priority is to "build back better" so that new homes and businesses are resilient to future disasters.

Responding to criticism regarding delays in financial assistance, Dharmathilake stated that more than 80% of affected residents have already received aid to repair damaged houses.

Sri Lanka's current foreign reserves stand at approximately $7 billion. Economists like Wignaraja believe the government can manage the flood crisis and fuel price increases with effective fiscal management.

"But they will be in difficulty if the fallout of the Middle East crisis continues for a while," he said.

With finances already strained, the government is concerned about potential losses in foreign exchange inflows due to the Gulf war.

Last year, Sri Lanka received about $7 billion in remittances from workers abroad, mainly from Gulf countries. Although there have not yet been massive layoffs, concerns exist regarding future employment opportunities for Sri Lankans in the region.

How the government addresses the extensive reconstruction efforts and economic challenges stemming from the Gulf war may ultimately define President Dissanayake's leadership.

Additional reporting by Ranjan Arun Prasad, BBC Tamil Service in Kandy

AFP via NDRF Director General Piyush Anand briefs the media at the event to felicitate 8th NDRF team from Ghaziabad, which returned after successful mission to Sri Lanka after Cyclone Ditwah under Operation Sagar Bandhu on December 9, 2025 in Ghaziabad, India
India's disaster response force was quick to respond to Sri Lanka's floods

This article was sourced from bbc

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