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By P.K.Balachandran
Colombo, September 18: The Brussels-based International Crisis Group (ICG) says that the September 21 Sri Lankan Presidential election will in large part be a referendum on how President Ranil Wickremesinghe’s government has handled the economic crisis and ensuing modest recover”.
It will also, in a more limited way, indicate the degree to which the 2022 Aragalaya protest movement’s demand for “system change” still resonates with Sri Lankans.
A close contest is forecast posing challenges to the IMF and the international donors. ICG notes that concern among international partners that the campaign and its possible outcomes could complicate implementation of the IMF reform program is high, with one senior Fund official in Sri Lanka warning that any shift in government policy would have to be “realistic and achievable within the timeframe of the program” since the country was on a “knife-edged path” to recovery.
Despite these worries, the polls also offer the chance for important adjustments and the prospect of winning greater popular support for a more inclusive, equitable reform program, the ICG report released on Tuesday said.
“Opinion polls indicate widespread dissatisfaction with the economy and suggest that, despite recent gains, Wickremesinghe remains the underdog, running behind his two main rivals, opposition leader Sajith Premadasa, who heads the Samagi Jana Balawegaya (SJB) and Anura Kumara Dissanayake, leader of the leftist Janatha Vimukthi Peramuna (JVP) and its National People’s Power (NPP) alliance.”
However, with the political landscape more fluid and unpredictable than ever, what looks to be the country’s first-ever three-way race could well be very close, particularly given the uncertainties surrounding preference votes.
Wickremesinghe
Presenting himself as a non-partisan candidate and promising to complete his work of economic recovery by continuing with IMF-backed reforms, Wickremesinghe is running as an independent backed by a range of parties and individual politicians.
Having planned on the Sri Lanka Podujana Peramuna’s (SLPP’s) formal backing, his campaign suffered a setback when the party decided to put forward its own candidate, Namal Rajapaksa, son of former president Mahinda Rajapaksa. While the large majority of SLPP legislators, many of them government ministers, are backing Wickremesinghe, his campaign will lack support from the SLPP’s formidable party machine, probably lessening his already modest chances of victory.
Premadasa
Opinion polls in the months immediately prior to the vote have shown the SJB’s Premadasa in or near the lead, in a close race with the NPP’s Dissanayake.
As the largest parliamentary opposition party, with a number of veteran legislators who have extensive economic knowledge and government experience, the SJB may be well placed to devise more inclusive policies under the terms of the IMF deal, ICG says.
The SJB announced its intention to revise the agreement, but SJB members have also made clear that they would respect much of the existing deal.
Premadasa has regularly declared his support for a “social democracy” that aims at “reducing inequalities”, and senior SJB legislators have stressed the importance of developing a more equitable tax system.
However, the party has struggled to articulate a clear vision or a convincing platform and has suffered from internal divisions. Having served as ministers under Wickremesinghe when he was prime minister from 2015 to 2019, Premadasa and other SJB leaders also have trouble distinguishing themselves as a credible alternative force.
Dissanayake
The NPP’s Dissanayake, who has led in opinion polls for much of 2023 and 2024, promises a more radical break from current policies and ways of doing politics.
Organising intensively across the country since the end of the protest movement, Dissanayake and the NPP aim to channel popular anger at economic hardship and lack of action on corruption.
They are positioning themselves as the inheritors of the Aragalaya’s project of “system change” and the only real alternative to the establishment parties that have ruled Sri Lanka since independence, given that the JVP, which dominates the alliance, has only been in government once – and then only briefly.
Many Sri Lankans appear willing to give the NPP a chance to solve the country’s problems.
On economic issues, the NPP has made a major effort to moderate its image and adjust some of the more leftist policies of the Janatha Vimukthi Peramuna (JVP) which is leading the coalition.
From its initial rejection of any role for the IMF, it now agrees that the Fund should play an essential role in economic recovery, but promises to renegotiate the bailout agreement so as to make it more equitable.
Despite its longstanding opposition to privatisation of state-owned companies, the party now also accepts that some sell-offs are acceptable, so long as strategic industries remain under state control.
However, it will almost certainly be opposed to many of the long-term “structural reforms” – to land, agriculture and labour laws – that the IMF believes are essential to increasing productivity and growth.
More broadly, the JVP’s socialist rhetoric, violent revolutionary past and limited government experience, alongside the absence of a detailed policy platform from the NPP, have raised concerns among many middle-class and wealthy voters, as well as Sri Lanka’s international economic partners.
Fear of Violence
Given the deep mistrust between many in Sri Lanka’s elite and the JVP, and the longstanding bitterness between the JVP and Wickremesinghe, some observers worry that a close race in which the JVP/NPP’s Dissanayake appears to have a real chance of winning could bring with it risks of violence. Either his victory or his narrow defeat could raise tensions. The fact that the system of preference votes could see the election produce, for the first time ever, a president who has not won a majority of votes, adds further potential for volatility.
Fate of Reforms
With the presidential election approaching, the future of Sri Lanka’s economic reforms hangs in the balance. Opposition to the tough measures imposed by President Wickremesinghe has risen as many citizens suffer enormous hardship at the same time as Colombo cuts costs and takes other austerity measures perceived by the public as unfair.
Some influential foreign governments, meanwhile, are fearful that elections could bring to power a government less committed to the IMF’s liberalising measures, or that powerful constituencies in Sri Lanka might otherwise thwart the reforms.
Therefore, the government, the IMF and foreign supporters, should do more to ensure that the cost of reforms is shared more evenly than it has been to date, with the wealthy paying a fairer share and poor, offered greater relief from austerity measures.
The authorities should also take bolder steps to combat corruption and impunity and loosen the hold of vested interests on policymaking.
Battling Corruption
A Proceeds of Crime Act must be enacted, a Public Prosecutor’s Office, independent of the Attorney General’s Department should b set up. Finally, the government should formally re-engage with the Stolen Assets Recovery program, co-managed by the World Bank and the UN Office on Drugs and Crime, and commit to renew the pursuit of cases investigated from 2015 to 2019.
The IMF should encourage the next government to invite civil society organisations – whose local knowledge and expertise has already proven invaluable to the Fund – to play a central role in monitoring fulfilment of the governance diagnostic’s recommendations.
Protecting the Most Vulnerable
Given budget constraints and low tax rates, the Sri Lankan government does not now have the money to fund the universal anti-poverty program that many researchers and activists are appealing for.
Even so, it could commit to gradually increasing cash grants as state resources improve, while taking other steps to offer relief to the most vulnerable.
It could, for example, provide adequate funding for school meals and the Triposha nutritional supplement programs, which are open to all children and pregnant and lactating women, respectively.
Cash Transfer
Furthermore, in light of the troubled rollout of the Aswesuma cash transfer initiative, the government should ensure access to reliable information with regard to eligibility, selection and benefits, carrying out meaningful consultations with those most affected – namely women, vulnerable groups and other welfare beneficiaries – and organisations who work with them. On the basis of this feedback, the authorities should review and possibly adjust the Aswesuma algorithm.
Sale of Public Assets
Any sale of state assets under the terms of the IMF program, for instance, should be pursued as transparently as possible, with strong safeguards against insider deals and with benefits and costs clearly communicated to the public.
To avoid suspect sales and ensure the maximum public benefit from any restructuring, the government should first establish the corporate governance, competition and regulatory frameworks needed.
Privatisation
A draft labour law and a new National Education Policy Framework have already triggered protests, and there are growing concerns about the government’s push to increase private ownership of land. Before it enacts such socially transformative policies, the government should consult widely, winning enough support from affected constituencies to avoid major social upheaval and potentially violent disruption.
The next government should ideally leverage its electoral legitimacy to win agreement from the IMF and development banks to revise the package of liberalising reforms so that whatever growth they deliver is more equitably shared.
Foreign Support and Debt Relief
Should the IMF program, which foreign supporters advocate for and helped finance, fail to bring tangible benefits to the vast majority of Sri Lankans, their own reputations in the country will be affected.
These creditors “are now inextricably linked to the IMF program in the country’s public imagination, and will be held at least partly responsible by many for the inevitable pain it brings”, a diplomat acknowledged.
Having given Wickremesinghe almost uncritical support, the IMF, multilateral development banks and bilateral donors may well have to adapt to a handover of power after the elections and seek partners among forces across the Sri Lankan political spectrum.
“The IMF and its influential members would have been wise to try and build a broader political consensus for reform, beyond the president and his key ministers”, a senior diplomat observed.
Flexibility Needed
In the event that Dissanayake wins and an NPP government seeks In the event that Dissanayake wins and an NPP government seeks major changes to the current program, the IMF should show flexibility while insisting that further substantial increases in government revenue are essential to resolving Sri Lanka’s debt crisis.
The Fund should assist the new government to develop sustainable ways of expanding the revenue base, including through taxing wealth. In exchange for significant progress on revenue growth, the IMF should be open to a small reduction in the 2.3 per cent primary budget surplus target, in order to free up more resources for essential social spending.
IMF Should Enhance Contribution
Finally, Sri Lanka’s international creditors need to accept that additional debt relief will be necessary to create the fiscal and political space for a new government to share more widely the costs of austerity and distribute more equitably any benefits from structural reforms.
A good first step would be for the next government to convene a panel of independent economists to conduct an updated debt sustainability analysis based on a framework better attuned to Sri Lanka’s specific debt and currency challenges than the IMF’s market access model. On this basis, the government could begin discussions with the IMF and international creditors about how much additional debt relief is needed and how best to find it.
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