This paper reviews water institutional reforms in Sri Lanka by contrasting those observed during the 1980s with those proposed during the 1990s. While the earlier reforms focused on the irrigation sector that yielded quicker benefits and low political risks, recent reforms have covered macro institutions and the whole water sector where the benefits are gradual and less visible but with high political risks. As the earlier reforms were packaged as part of larger investment programs, they had in-built incentives and strong proponents. But recent reforms not only lacked such conditions but also faced an ideologically charged hostile environment. Despite the current failure of the reforms, their future prospect is not that bleak in view of the emerging consensus on most issues and the continuing government commitment to reform. The Sri Lankan case also provides evidence for the effects of transaction cost and political economy factors, the tactical benefits of reform packaging, sequencing and timing, and the role of stakeholders' perception, learning and information in articulating the demand for change.

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