The Sri Lankan government is urgently seeking alternative funding for over a dozen projects previously supported by the United States Agency for International Development (USAID), following a sudden freeze on foreign aid by the U.S. government. This move has disrupted several critical national programs across sectors like agriculture, climate change, disaster preparedness, entrepreneurship, and border security.
At the time of the aid freeze, five key projects across the Ministries of Justice, Finance, and Environment were actively receiving USAID support. These contributions amounted to approximately 1.34% of the government’s budget for major programs. Since 2019, USAID has provided Sri Lanka with financial support totaling US$233.4 million, with disbursements including $20.4 million in 2019, $41.9 million in 2021, $26 million during the 2022 crisis, and over $42 million in 2024 for governance and market-driven growth.
Among the affected initiatives is the Finance Ministry’s PARTNER project, a $22.9 million program developed with Deloitte Consulting to improve trade regulations through mechanisms such as a trade portal and biotech park. This, along with the $15 million “Efficient and Effective Justice” project, has now been suspended. The Sri Lanka Energy Project, worth $19 million, which supported institutions like the CEB, LECO, and SLSEA in promoting renewable energy, is also impacted. Additionally, USAID had allocated $46 million in 2023 to mitigate the country’s fertilizer crisis.
With USAID funds on hold, the Finance Ministry has confirmed it is actively pursuing new funding avenues. Negotiations are underway with foreign donors, friendly governments, and international financial institutions with a history of supporting Sri Lanka. The government is also looking at reallocating local resources by adjusting budget priorities and expenses to ensure the continuation of vital projects.
In response to the aid cut, there is a growing emphasis on public-private partnerships (PPPs) to attract private investment into public infrastructure and development. This shift aims to minimize reliance on foreign aid while sustaining momentum in essential sectors.
Furthermore, Sri Lanka is engaging in discussions with major multilateral lenders such as the World Bank and Asian Development Bank to secure loans or grants to fill the void left by USAID. While these efforts are ongoing, officials acknowledge the abrupt withdrawal of U.S. assistance poses serious challenges, including potential project delays and the urgent need to mobilize replacement funding.
A senior finance ministry official noted that the government remains committed to continuing these development initiatives despite the setback. He emphasized the importance of ensuring that critical services and project timelines are not adversely affected during the transition to alternative funding sources.
In conclusion, Sri Lanka is taking strategic steps to manage the fallout from the USAID freeze by diversifying its funding sources, leveraging domestic and private sector resources, and strengthening ties with multilateral institutions. However, the swift cessation of American aid has undoubtedly complicated the financial landscape for development planning in the country.
