In recent months, the foundations of traditional aid models have begun to erode, as major donor countries scale back their commitments to official development assistance (ODA). This shift has prompted a global rethink of what development should look like.
Sri Lanka’s development landscape is also evolving. During and immediately after the 2022 economic crisis – marked by soaring inflation, depleted foreign reserves, power shortages, and mounting debt distress – the focus of development efforts shifted toward urgent humanitarian needs. Now, three years later, as those needs have largely abated, attention is gradually returning to longer-term development goals.
Yet the space for financing these goals remains deeply constrained: Sri Lanka continues to navigate a complex debt restructuring process with bilateral, multilateral, and private creditors, alongside an IMF-supported reform program, raising questions about existing and potential sources of development finance.
Against this backdrop and coinciding with the Fourth Financing for Development Conference (FfD4) in Seville, Spain, The Asia Foundation (TAF) convened a group of development organizations, think tanks, and partners in Colombo, Sri Lanka, to reflect on the changing aid landscape and explore ideas for how to build a more resilient and inclusive development cooperation system.
Like other countries in the region, Sri Lanka is stepping up its efforts to explore alternative financing models – mechanisms that go beyond traditional concessional loans, commercial borrowing, or ODA. Many of these were discussed at FfD4 as well. For instance, debt-for-nature swaps, where part of an external debt may be canceled or restructured in exchange for domestic investment in conservation or climate projects. Sri Lanka could consider such a mechanism for coastal or biodiversity protection. Or there may be other innovative finance mechanisms, such as blended finance platforms that pool concessional donor funds with private instruments to support infrastructure development or renewable energy projects. Another option is South-South cooperation focused on co-financed projects.
For Sri Lanka, these opportunities clearly exist, but they are very much underexplored. South–South and triangular cooperation could be leveraged more effectively, particularly through partnerships that connect the country to regional platforms such as ASEAN and trade mechanisms such as the Regional Comprehensive Economic Partnership, which seeks to streamline trade across the Asia Pacific. And while private sector engagement has, to date, been limited, with exposure to innovative co-financing models and legal and accountability frameworks, there is also potential for growth in this area for Sri Lanka.
In addition, the retreat of traditional aid inevitably means many lower and middle-income countries will have to look inward for the resources they need for development. As outlined in the Compromiso de Sevilla, which resulted from FfD4, domestic resource mobilization, especially through taxes, will have to become the cornerstone of sustainable funding strategies. Some suggest this will mark the “tax era of development,” one that prioritizes smarter, equitable tax policy and capacity over declining aid or unsustainable borrowing.
As such, global debates on tax justice, international cooperation, and equitable reform are gaining traction in multilateral forums, from the United Nations negotiations on a new framework convention on international tax to country coalitions pressing for fairer treatment of developing economies. Yet Sri Lanka has remained largely absent from these conversations, even as it is compelled to undertake sweeping tax reforms under its IMF program, which requires VAT hikes, the broadening of the income tax base, and tightening compliance. This disconnect risks leaving the country in a reactive posture, implementing reforms shaped by external conditionalities rather than contributing to the global rethinking on how taxation can underpin equity, growth, and resilience in the post-crisis era.
Together, this vastly changing context raises questions around how governments will be held accountable and how public goods – such as increased gender equality, social inclusion, and climate resilience – can be funded. While Sri Lanka receives much less than 1 percent of its national income from ODA, far below the average for developing countries, a significant proportion of these funds go to civil society, who are often the sole voice in progressing these agendas. Yet dramatic reductions in ODA could see organizations downsizing, suspending programs, and struggling to stay afloat. This survival-driven approach risks undermining the main vehicle for accountable governance at a time when it is crucial to the country’s development.
As Sri Lanka navigates this complex transition, the country faces both the constraints of a post-crisis economy and the opportunities of a shifting global aid architecture. The retreat of traditional donors and the rise of new financing models mean that development cooperation can no longer be understood simply in terms of aid flows. Instead, it must encompass a wider set of facilitators of change – from debt swaps and blended finance to tax reform and new South-South partnerships – that can align with Sri Lanka’s long-term needs for resilience and equitable growth. Within this changing landscape, as our consultation illustrated, civil society has a vital role to play in this mix: not only in protecting core principles such as accountability and inclusion, but also in engaging directly with policy processes.
The challenge ahead is to ensure that these multiple strands – innovative financing, global tax debates, donor engagement, and civic action – are woven together into a development system that is sustainable, responsive, and ultimately owned by the people it is meant to benefit.