After the storm: A policy blueprint to protect MSMEs from climate shocks

“Why safeguarding micro, small and medium enterprises after Cyclone Ditwah is essential for economic recovery and long-term resilience”

- By A.G.S. Swaminathan Sharma

Traders busy restoring their stores impacted by the Cyclone Ditwah in the Central Province - Pic by Shehan Seneekera

(Pic by Shehan Seneekera)

WHEN Cyclone Ditwah swept across Sri Lanka with days of torrential rain, floods and landslides, the first focus—rightly—was on saving lives. With over 350 deaths, nearly 400 missing, and over 1 million people affected, the country is in the grip of one of its worst disasters in years.

But once the waters recede and media attention moves on, another crisis will remain: the quiet, grinding collapse of thousands of micro, small and medium enterprises (MSMEs) that form the backbone of Sri Lanka’s economy.

MSMEs account for more than 90% of all enterprises in Sri Lanka, contribute around 52% to GDP and provide roughly 45% of employment. Yet this same sector has already been hammered by a series of shocks: the COVID-19 pandemic, the 2022-23 economic crisis, high inflation and interest rates, and a sluggish global environment for exports. Cyclone Ditwah and the associated flooding now threaten to push many of these businesses beyond recovery.

In this context, the key question for Government and policymakers is clear: What must Sri Lanka do—quickly and strategically—to keep MSMEs alive, help them recover, and make them resilient to future climate disasters?

The importance of MSMEs is already well recognised in national policy. The National SME Policy Framework describes SMEs as the “backbone” of the economy in terms of employment, regional development and inclusive growth. Central Bank reports and recent studies also emphasise that MSMEs are critical for innovation, supply-chain linkages and as breeding grounds for future large firms.

In a post-disaster setting, MSMEs play several additional roles: