The Democratic Socialist Republic of Sri Lanka is now emerging from two decades of armed conflict between the Government and the Liberation Tigers of Tamil Eelam (LTTE). This conflict, rooted in decades of cumulative social tensions has devastated physical infrastructure (especially in the North and East) and led to major deterioration in the quality of life and human resources. The country remains in a perilous position, with violent conflict still an ongoing possibility. Therefore, the dynamics of harmonization and alignment supporting rehabilitation/development activities change rapidly as new (and often unexpected) events shed fresh light on past experiences.

In addition, the country was affected by the tsunami tidal waves on December 26, 2004. The series of 6.5 meter high tidal waves struck approximately two-thirds of the coastal area of Sri Lanka. The affected areas span thirteen districts including Jaffna in the north, the eastern and southern coasts, and parts of the west coast as far north as Chilaw. The worst affected areas of the country were the Ampara, Batticaloa, Jaffna, Mullaitivu, and Trincomalee districts in the North East and the Galle, Hambantota, and Matara districts in the South.

The brunt of the negative impacts was borne by the vulnerable groups, e.g. poor fishermen living close to the shore, and the population in the eastern part of the country that was most affected by the civil conflict. A large proportion of the losses are concentrated in housing, tourism, fisheries and transportation.

Damage in the education sector was highest in primary and secondary schools. In the health sector, the health care centers (mainly in the North East and the South) took the brunt of the damage. In the fisheries sector, damage was enormous, e.g with displacement of fishing communities and damage to eleven large fishing harbors. In agriculture, the increased salination of the soil in the coastal zone will prevent cultivation here for about four years until successive monsoons wash away the salt deposits. Significant losses were sustained in power, transportation (roads and railways), water supply and sanitation.

Donor response to the disaster was rapid. The UN Agencies (UNDAC, UNDP, UNICEF, WFP and UNFPA) provided technical assistance for the relief effort and pledges (both cash and kind) were received from many development partners.

In early 2002, the Government and the LTTE signed a Cease Fire Agreement (CFA). Since then, there have been numerous attempts to improve the harmonization and alignment of rehabilitation and development programs, both between donors and between the donor community and the stakeholders. For example, since the Oslo Agreement in late 2002, the Sub-Committee for Immediate Humanitarian and Rehabilitation Needs in the North and East (SIHRN) played an important role in communicating with the aid community and helping to prioritize urgent rehabilitation needs in conflict-affected areas. The SIHRN also provided a potential mechanism for pooling and allocating donor funds addressing humanitarian and reconstruction needs. However, LTTE withdrew from peace negotiations in early 2003. As a result, the meetings of SIHRN were effectively suspended and there are increased tensions around issues of managing the peace process and sharing power. Following the decline of SIHRN, the LTTE created a Planning and Development Secretariat (PDS) to formulate and oversee sound macroeconomic policies in the North-East.

In an effort to coordinate the donor funds (pledged at the Oslo Conference in 2002) effectively, the North East Reconstruction Fund (NERF) was formed to serve as an instrument for channeling the funds into rehabilitation priorities in the conflict-affected zone under the supervision of SIHRN. NERF has been shelved and several attempts to restart it have failed.

In April 2004, elections were held. The new Government that resulted has since prepared an Economic Policy Framework, set up a Ministry of Relief, Rehabilitation and Reconciliation (Triple R(II)) and created the National Council of Economic Development (NCED). The President is the Minister of Triple R. Although this agency does not have a direct implementation role, it is the main ‘gateway’ for new projects addressing relief, rehabilitation or reconciliation in the North-East.

The NCED was formed to ensure that all government bodies formulate policies and programs consistent with the national development agenda and that those programs are effectively implemented. The NCED has formed a number of ‘operational clusters’ (i.e. workshops focused on different economic themes), one of which is the North East Development and Donor Coordination (NEDCO).

The Government of Sri Lanka (GoSL) will be leading the harmonization process. In an initial phase, the process will be focusing on harmonizing donor policies and procedures in the area of environmental safeguards, to the extent possible around existing Government practices and regulations.

Asian Development (AsDB), the Japanese Bank for International Cooperation (JBIC) and the World Bank (WB) work closely together. There is an on-going program of harmonization of environmental and social safeguards between the Government and these three agencies.

The World Bank in collaboration with the Netherlands Commission for Environmental Impact Assessment (EIA) is exploring options to assist the Central Environmental Authority in improving the EIA process.

In an attempt to alleviate some of the economic disparity contributing to strife, the North East Irrigated Agriculture Project (NEIAP) - a partnership between the GoSL, the World Bank, the UN High Commission for Refugees, the International Committee for the Red Cross, NGOs, and local community-based organizations - is helping to rebuild village organizations, rehabilitate infrastructure, and provide employment opportunities while transferring organizational, managerial, and technical skills to local communities.

The Government has requested the revision of the specific development objectives of seven WB (IDA) Credit Agreements and three Grant Agreements to support a two year emergency recovery program for the tsunami-affected districts. In response, the WB finalized the required portfolio restructuring for the Tsunami Emergency Recovery Program – Phase I and approved an Emergency Credit (Phase II).

The restructuring (Phase I) released immediately US$50 million for a multi-sectoral reconstruction effort that includes roads, rail, power, water, housing, health, education, and livelihoods. In addition, US$25 million would be set aside for reconstruction on a contingency basis. Another $75 million (Phase II) will be available.

AsDB and JBIC plan to address road, rail, ports, power, telecommunications and water in the tsunami-affected districts.

At the request of the GoSL, AsDB, JBIC and the WB led a joint mission in Colombo in early January 2005 to undertake an initial tsunami-related damage and needs assessment. AsDB focused on the transport sector, livelihood restoration, and the simplification of procurement procedures; JBIC/JICA evaluated power and water supply sectors; ILO and FAO provided inputs on the fisheries sector and other livelihoods; and WB (with inputs from WHO and Germany (KfW)) considered impacts to education, health, agriculture and livestock, tourism, private housing, social and environmental systems, and the overall economic impact. Also, contributions on strategic issues were provided by DFID.

The assessment that Sri Lanka will need approximately US$1.5 billion (i.e.7% of GDP) to effectively implement a recovery and reconstruction strategy, sets out clear guiding principles with emphasis on the inclusion of affected communities in the planning and process of rebuilding. Consultations with GoSL, LTTE, civil society and other development partners will continue. The report will be finalized in April 2005.