Sri Lanka is a lower middle-income country with a population of 21.9 million people. The human development of the country is based on steady economic growth, transitioning the economy from a predominantly rural-based economy towards an economy organized around manufacturing and services. Despite the recent high human development, there are significant inequalities, including gender-related, within Sri Lankan society. These inequalities have been exacerbated by a three-decade-long ethno-political war, which ended in 2009. Additionally, the country is highly vulnerable to climate change-related risks. The North, East, and Uva Provinces are characterized by high rates of poverty and vulnerability. A high public debt has meant that critical social services, such as health, education, and social protection, have been underfunded.

The Sri Lankan State is organized at the central, provincial, and local (district and division) levels. Local governments hold significant responsibilities, offering a range of public services such as health (including Ayurveda), pre-school education, provision of land and building permits, and waste collection and disposal services. Provincial Councils (PCs) are the first layer of local government, established by the 13th Amendment to the Constitution in 1987. There are nine PCs in the country, four of which fall within the geographical area of the intervention. PCs are considered part of the 'devolved' structure, which exists alongside the 'deconcentrated' structure of the central line Ministries. There is much overlap between the devolved and deconcentrated structures, with the majority of funding from the central budget being channeled through deconcentrated units for service delivery in key areas such as health and education.

Local Authorities (LAs) are the second layer of local government. They are distinguished between Municipal Councils (MCs), established by the MC Ordinance in 1947, Urban Councils (UCs), established by the UC Ordinance in 1939, and Pradeshiya Sabhas (PS), established by the PS Act in 1987. While all are considered LAs, municipal and urban authorities have more than 30,000 inhabitants and are prioritized based on land size, economic contribution, and infrastructure.

While the Constitution of Sri Lanka foresees more power and autonomy to the provinces, in practice, most public funding is still channeled through deconcentrated units of the central government institutions. It is understood that a greater role for LAs in providing public services, revenue generation, and resource allocation would better support local economic growth and inclusive and responsive local governance systems. This would also provide a space for local communities, civil society organizations (CSOs), and community-based organizations (CBOs) to participate in local development planning and decision-making to ensure that the voices of the people, including marginalized groups, such as women and youth, are included. Stronger LAs would strengthen local resilience to shocks and promote peaceful co-existence. Empowered LAs can thus potentially be a stabilizing factor amidst economic and political disturbances.

However, as it currently stands, LAs hold little power. There is limited integration and linkages between LAs and the local (deconcentrated) government institutions, leaving LAs in a marginal role with blurred lines of responsibilities between both actors. It is against this background that the Capacity Development for Local Government (CDLG) intervention has been developed and is implemented by the United Nations Development Programme (UNDP). The EU Delegation to Sri Lanka applied the indirect management modality and signed a corresponding Contribution Agreement with UNDP.