This study which was conceived in the aftermath of the December 2004 Tsunami examines the impact of a natural disaster of a magnitude which is unprecedented in Sri Lanka’s recorded history. Given the fact that Sri Lanka has been a country which has been relatively free from natural disasters , the shock to the economy and society as a whole, resulting from the Tsunami was totally unexpected and exceptionally severe. The disaster demanded a unique combination of policy responses that would deal simultaneously with all its major consequences within a short period of time. These included • the human problems of a large population affected by the tsunami , -death and bereavement, displacement and loss of shelter, lack of food and clothing , loss of livelihood , disruption of heath care and education • the economic losses in productive sectors and unanticipated costs which posed new burdens on the budget and the economy as a whole. • The lack of institutional capacity and structures of good governance in the existing system to cope with and manage a process to which it was unaccustomed.