Decentralization involves transferring authority and responsibility from central to local or regional levels, enabling them to independently manage revenues, expenditures, and service delivery. In Sri Lanka, the introduction of the Provincial Council (PC) system through the 13th Amendment to the Constitution represents a significant step toward decentralization through devolution. The system was intended to enhance administrative efficiency and strengthen coordination between provincial and central governments. However, in practice, the implementation of devolved powers has faced multiple challenges. This study explores the constraints on fiscal decentralization within Sri Lanka’s provincial council system and recommends policy measures for improvement. A qualitative methodology was employed, relying primarily on secondary data and content analysis. Findings reveal several persistent issues in fiscal governance, including vertical and horizontal imbalances in fund allocation, delays in disbursements, fragmented and insufficient financial transfers, and inefficiencies in accessing and utilizing international grants. Additionally, complex bureaucratic procedures and undue political interference further hinder fiscal performance. The study emphasizes that overcoming these constraints requires enhancing fiscal autonomy for provincial councils. Strengthening this autonomy is essential to improving governance, ensuring equitable resource distribution, and enabling more effective service delivery across regions. Without such reforms, the goals of decentralization remain largely unfulfilled in Sri Lanka.