Background

The earthquake that caused the tsunami on 26 December 2004 occurred at 6:58 am Sri Lanka time with the first large wave hitting the east coast at 8:35 am. Within a very short time over 36,000 people were dead (this total includes the 5,644 who remain classified as ‘missing’), and several hundred thousand had been displaced. Massive damage had also been inflicted on thousands of houses and other buildings, railways, bridges, communication networks, and other infrastructure and capital assets.

Although Sri Lanka had experienced periodic droughts, floods, landslides, and the occasional cyclone, in recorded history it had never experienced a tsunami, or indeed any other type of natural disaster of this scale and magnitude.¹ Although the country was completely unprepared for a disaster of this scale, the relief effort that got underway almost immediately—initially organized by local communities, followed by the government and international agencies—was able to feed, clothe, and shelter survivors; provide the injured with medical attention; and ensure that the thousands of bodies were cremated or buried, avoiding any disease outbreaks. The initial response is generally agreed to have been a success despite the understandable confusion which accompanied this effort at times.

However, as described in our earlier report on this issue (Jayasuriya, Steele and Weerakoon, 2006), it became clear as the reconstruction and rehabilitation phase proceeded that moving from the immediate relief effort to addressing the massive reconstruction tasks posed a different set of challenges that was in many ways more complex. The tsunami had come at a time of deterioration of the macroeconomic environment: GDP growth was slowing from the second quarter, inflationary pressure had been persistently building from the middle of 2004, fiscal and external current account deficits were growing, and the currency was rapidly depreciating.

As explained in the earlier report, the tsunami—paradoxically—brought a measure of stability to the economy, which had been straining under growing macroeconomic imbalances. For Sri Lanka, as for other affected countries that were ready to accept external assistance, the promised international assistance appeared to be more than adequate to cover the full costs of immediate relief and reconstruction, and produced an almost euphoric (though impermanent) national mood. In particular, it provided an unanticipated source of foreign capital inflows for the relief and reconstruction effort and enabled the country to avoid the slide towards a currency crisis. Not only did the additional influx of foreign capital allow Sri Lanka to maintain a fairly healthy balance of payments (BOP) during 2005–2006, but relief and reconstruction-related expenditures also boosted GDP growth to a healthy annual average of 6.7 per cent over the same period.

While the tsunami diverted attention away from the growing structural imbalances in the economy, they were not eliminated. As the reconstruction and rehabilitation phase proceeds—albeit at a slower pace than initially anticipated—issues taking centre stage relate to the effectiveness with which resources were mobilized, the effectiveness of delivering assistance and its coordination, and the gaps opening up in financing reconstruction and the implications of these financing gaps for macroeconomic policy management. The aim of this study is to contribute to the discussions and debates on appropriate policies for the medium-term reconstruction effort by providing an analysis of some of the priority issues emerging from Sri Lanka’s experience of post-tsunami reconstruction and rehabilitation. We update and expand the discussion and analysis of the earlier report and draw on a survey of affected households in an attempt to obtain a broader understanding of the perceptions of the recovery process at the grass-roots level.²

Download this Discussion Paper [ PDF 312.3KB| 40 pages ].

Comment(s)

There are [0] comment(s) for this entry. Post a comment.