This Working Paper describes the economic growth rate and patterns in Sri Lanka during the 1990s, showing the interrelationship between uneven sectorial growth and the unbalanced regional growth patterns. This is reflected in the regional distribution of unemployment and poverty. In addition, the ongoing war in the North and East has resulted in economic decline in affected areas. Secondly, the paper outlines policy measures aimed at stimulating economic activities in the regions, and underlines the need for creating a conducive environment at the regional and district level. Thirdly, the opportunities for investment in sectors with higher potential in less developed areas are reviewed. Donors may support efforts to eliminate bottlenecks and facilitate sectors that will become profitable on a sustainable basis in the regions.