Sri Lanka announced tax cuts and subsidised loans for small businesses and exporters Thursday, amid concerns a raging drought and flash flooding could drag on economic growth.

Officials had warned the government's growth target of 5 percent was unlikely after floods and drought destroyed crops, homes and industries across the island.

Sri Lanka recorded 4.4 percent economic growth last year before the floods in May and the onset of drought which has affected 1.5 million Sri Lankans.

Finance Minister Mangala Samaraweera said businesses would be offered heavy-subsided loans up to 750 million rupees ($5 million) and tax cuts for commercial vehicles to encourage entrepreneurship.

Households meanwhile can access incentives for rooftop solar units, while a tax on broadband would be abolished to encourage greater internet use.

"Our measures today will increase economic growth and make this country an entrepreneurs' paradise," Finance Minister Mangala Samaraweera told reporters.

He said the package, announced ahead of the November budget, was expected to create 50,000 jobs, despite Sri Lanka suffering a severe labour shortage in areas like construction.

Hundreds died in floods and landslide in May, while a devastating drought has ravaged small-scale industries in the north and east of the island.