Abstract:
The study investigates the suitability of the government fiscal policy to ensure the
efficient use of foreign aid and this is necessary for any developing country like
Sri Lanka as it is the main source of external finance. Therefore an outstanding
mechanism is needed in order to maximize the benefits of the recipient country. The
paper identifies this as a matter of urgent consideration due to heavy corruptions and
mismanagement. On the other hand, multinational donor agencies and their policies
make a direct impact on fiscal policy formulation. The paper attempts to explore
above three factors and recommend the most efficient fiscal policy model for the
effective use of foreign aid in Sri Lanka. The paper further highlights the growing
trends in fiscal policy formation over the period 1970-2006.with using secondary
data. The study concludes that fiscal policy in the country affects the effective use of
foreign aid and the continuous and growing flow of it to the economy.
