Foreign aid was essential in preventing acute foreign exchange shortages after 1977. It accounted for around 9 percent of GDP from 1978 to 1986. Aid has been of two types: outright grants and loans on concessionary terms. The annual level of grants grew from US$21.9 million in 1978 to US$178 million in 1986. Most of this money was tied to specific projects, such as the Accelerated Mahaweli Program. Both grant aid and concessionary loans come from Western Europe, the United States, Japan, and international organizations. Project loans amounted to US$351.2 million in 1986, and nonproject loans were US$77.1 million.
Most foreign aid to Sri Lanka was pledged at the meetings of the Aid Sri Lanka Consortium, which was organized by the World Bank on behalf of the major donor countries. The Sri Lankan government sent the World Bank an annual request outlining its needs. The member donors then met to consider these requests and coordinate their aid policies. The World Bank and most aid donors strongly supported the liberalization of the economy during the decade after 1977; indeed, at times they have urged the government to carry its free market policies further.
A special meeting of the consortium in December 1987 pledged US$493 million above its normal aid commitments toward a three-year reconstruction program. Much of this money was targeted for specific projects in Northern and Eastern provinces. Observers believed that if there were a peaceful solution to the nation's political problems, total foreign aid would reach US$2.7 billion in the years 1988 to 1990.
Data as of October 1988