The United States Agency for International Development (USAID) has been a cornerstone of development and humanitarian assistance in Sri Lanka since 1956, contributing over $2 billion to various sectors including agriculture, education, health, and governance. This partnership has been instrumental in supporting Sri Lanka’s journey toward self-reliance and sustainable growth.
In September 2022, USAID and Sri Lanka signed a five-year Development Objectives Assistance Agreement (DOAG), pledging an estimated $65 million (over 23 billion Sri Lankan rupees) to bolster Sri Lanka’s development initiatives. This commitment aimed to enhance democratic governance, foster inclusive economic growth, and promote social cohesion.
However, recent developments have cast a shadow over this longstanding collaboration. In early February 2025, the U.S. government announced a freeze on USAID funding, a decision that has sent ripples through Sri Lanka’s non-governmental organization (NGO) sector. Many NGOs, particularly those focusing on democracy, human rights, and governance, rely heavily on USAID support. The funding halt has jeopardized over 1,000 jobs, with organizations like the Transgender Network Sri Lanka, which received about 40-50% of their funding from USAID, already forced to lay off staff.
The ramifications of this funding freeze extend beyond immediate job losses. USAID has played a pivotal role in strengthening Sri Lanka’s democratic institutions, promoting economic prosperity, and enhancing disaster response capabilities. The sudden withdrawal of support threatens to stall ongoing projects and undermine progress achieved over decades. Moreover, the freeze could make it more challenging and costly for Sri Lanka to secure international investments, as USAID’s involvement often bolstered the country’s creditworthiness.
In response to this crisis, Sri Lankan authorities are exploring alternative funding avenues to sustain critical development programs. The abrupt cessation of USAID support has underscored the vulnerability of relying heavily on a single donor and highlighted the need for diversified funding strategies to ensure the continuity of essential services and initiatives.
The freeze on USAID funding in Sri Lanka reflects a broader trend of U.S. aid reductions, which have significant implications for emerging markets worldwide. As nations like Sri Lanka grapple with the immediate fallout, the global community watches closely, aware that the ripple effects of such policy shifts can have far-reaching consequences for development and stability in aid-dependent regions.
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