ECONOMYNEXT – Sri Lanka is struggling to come out of its unprecedented economic crisis as delay in a $2.9 billion International Monetary Fund (IMF) loan approval and Local Government polls scheduled for March 9 have increased the political risks in the country seven months after its people ousted political leaders and ministers for wrong economic policies.
Here are the five key political risks the island nation is facing:
1. Delayed IMF loan approval: President Ranil Wickremesinghe’s government has already fulfilled many prior conditions for the IMF loan and it has been waiting for financial assurances from its creditors. Government officials say all, but China have given strong financial assurances for the debt restructuring. A clear commitment on financial assurance from all the creditors is a must for the IMF Board approval of loan.
Government officials say that some discussions over China’s bilateral and commercial debts as well as Beijing’s hesitance to take a haircut have dragged the debt restructuring talks with China. China’s main concern is giving special treatment for Sri Lanka when it has already lent for many African countries under the same conditions similar to Sri Lanka. However, other creditors like India, US, and some members of Paris Club see Sri Lanka treating China with some special treatment. So They have repeatedly asked Wickremesinghe government to treat all the creditors equally.
China has already announced two year debt moratorium to Sri Lanka. However, it is yet to discuss specific debt restructuring tools with Sri Lanka, government officials say. The US Under Secretary of State for Political Affairs Victoria Nuland during her official visit last week said China’s assurance is not enough and Beijing should be more specific on debt restructuring. Overall, the delay in agreeing on the financial assurance from all Sri Lanka’s creditors have dragged the IMF loan approval which was expected by December last year.
2. Geopolitics: Sri Lanka has become the battle field for the modern cold war between India and China. India along with the United States have repeatedly raised concerns over Beijing possibly using its facilities to accommodate its military in the island nation. This was evident from the way both India and the US reacted when Chinese “research vessel” Yuan Wang 5 arrived in Sri Lanka’s Hambantota port in August last year.
Wickremesinghe’s government is compelled to listen to neighbour India due to past experiences of sudden government changes when they don’t heed to New Delhi, but at the same time to keep Beijing close because of “deep pockets” for investments and loans. The island nation also has to satisfy conditions from the European Union and the US to continue the island nation’s exports and navigate through a war crime probe initiated by the United Nation.
India’s request to implement one of the constitutional amendment enacted in line with 1987 Indo-Lanka accord also has created some discontent among ethnic majority Sinhala Buddhists and some minority groups like Muslims. The 13th amendment allows provincial councils to be more empowered with having land and police powers.
All in all, Wickremesinghe is unable to choose one world power at the expense of another.
3. Protests: Frequent daily protests are now emerging again in Sri Lanka after such prolonged street agitations in April-July last year ousted former president Gotabaya Rajapaksa, his brother and former prime minister Mahinda Rajapaksa, and his government.
Though the current protests are mainly against the tax hikes and led by state sector trade unions, it could go out of control in no time when common men see their tax money is just wasted to maintain an inefficient public sector and corrupt politicians. Wickremesinghe government had a knee-jerk reaction when the protests started this year on January 16 which saw police using tear gas and water cannons to disperse the crowd.
Political analysts say the unpopularity of Wickremesinghe’s government is growing except for making essentials like fuel and cooking gas available without queues. They say the protests could reach the point of no return when police and military also feel the same pressure the public face while the growing discontent could unite more unlikely rivals of the government to make a massive protests similar to July 9 that forced former leader Gotabaya Rajapaksa to flee the country fearing for his life.
The upward tax revision has increased anger because people have already shrunk their consumption due to high cost of living and hyper inflation as a result of Rajapaksa government’s excess money printing. If the government does not consider revising down latest tax hikes, political analysts say, the government could face a massive protest sooner than later. The power cuts are far from over and an energy crisis is possible anytime given the country has not planned for measures to face such a crisis, which also could result in protests.
4. Local Government polls: Opposition parties have the edge in the upcoming local government polls schedule for March 9. The results of the poll cannot have any changes in the parliament composition or policies. However, it could derail Wickremesinghe’s IMF-biased reform policies including higher taxes.
A landslide victory for opposition parties is likely to stir the parliament composition with many ruling party members may opt to cross the floor to the opposition side, just to win the next legislative election in the absence of strong laws against defecting party inside the parliament.
Political analysts say Wickremesinghe, who was a single member parliamentarian in his center-right United National Party (UNP) before being elected as the president, would want to delay the polls until economic stability returns. However, in the event of failing to delay, Wickremesinghe also has the discretion to dissolve the parliament from March. Dissolving the parliament could be disadvantageous for Mahinda Rajapaksa-led nationalist Sri Lanka Podujana Peremuna (SLPP), the party which had a landslide victory in 2020 general election. However, most people in social media have criticized the SLPP for winning the poll with false promises and misleading the public. That has led in the party members becoming unpopulour in their own constituency.
A local government poll in this juncture would have an influence in the parliament policy making because of the current crisis situation, many analysts say. But the concern is if that would force to reject the IMF loan with the opposition leader already saying Wickremesinghe’s government is giving too much into the global lender’s condition while increasing the hardship for the public. Opposition leader Sajith Premadasa has already said his party will not be obliged to back the IMF deal when it comes to the power.
5. Brain drain: Thousands of Sri Lankan professionals are leaving the country in search of better opportunities after the last year’s economic crisis. Many of these professionals were the cream of the country’s decision making group. This means Sri Lanka’s human resource capacity and capability are on the decline, resulting in an intellectually weaker work force. This could threaten the country’s future economic stability even though the country might see some increase in foreign remittances in the short period. (Colombo/Feb07/2023)