Sri Lanka’s post-default fiscal consolidation is expected to weaken as the government allocates additional funds to rebuild infrastructure damaged by Cyclone Ditwah, Moody’s Ratings has cautioned. Despite the country’s continued commitment to the IMF-supported reform programme, Moody’s said recovery efforts will temporarily hinder progress in reducing the budget deficit.
The cyclone caused extensive destruction to key infrastructure, including roads, bridges, rail networks and the power grid, severely disrupting supply chains and economic activity. The rating agency noted that the hardest-hit sectors are likely to be tourism, agriculture and manufacturing—major contributors to output and employment in the country.
Moody’s also highlighted that Sri Lanka faces greater vulnerability to climate shocks compared to other Southeast Asian economies such as Indonesia, the Philippines and Vietnam, which share similar exposure to climate risks but possess stronger fiscal buffers. The agency added that effective governance is critical to mitigating disaster-related risks.
“While recent reforms have led to some improvement, both Sri Lanka and Vietnam still hold issuer profile scores reflecting high credit exposure to governance risks,” Moody’s stated.
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