Sri Lanka’s new leftist leader, Anura Kumara Dissanayake, finds himself walking a tightrope. While his landslide victory in the presidential election offers a fresh start for the bankrupt nation, he inherits a precarious economic situation heavily reliant on an International Monetary Fund (IMF) bailout. This bailout, though a lifeline for the country, has come at a cost, imposing harsh austerity measures that have proven unpopular with the public.
Dissanayake, a vocal critic of global lenders and a champion of reversing the steep tax hikes and austerity measures implemented by his predecessor, has promised to renegotiate the IMF rescue package. However, analysts warn that his room for maneuver may be limited. The IMF, a lender of last resort, is unlikely to budge on core components of the $2.9 billion bailout, including a ban on printing money and specific revenue and spending targets.
Dissanayake’s party, the People’s Liberation Front (JVP), a leftist party known for its historical involvement in rebellions, has moved to reassure markets and creditors that they will not completely abandon the IMF program. Despite their pledge to adhere to the bailout’s framework, any renegotiations are expected to be minor, with fiscal adjustments being limited.
The new leader’s predecessor, Ranil Wickremesinghe, faced significant backlash for his austerity measures, which, while stabilizing the economy and ending shortages, also left many struggling to make ends meet. The IMF has acknowledged the progress made under Wickremesinghe’s administration but has cautioned that Sri Lanka is not out of the woods yet.
One of Dissanayake’s immediate challenges is securing parliamentary approval for a debt restructuring deal negotiated by his predecessor with international bondholders. He has called for snap polls to fill the newly elected parliament, a move that highlights the urgency of the situation. Experts warn that failing to secure the deal’s passage could expose Sri Lanka to legal action from its creditors.
Beyond the IMF, Sri Lanka faces the complex issue of its substantial debts to China and India, its two largest bilateral creditors. Both nations have expressed willingness to work with Dissanayake’s administration. Dissanayake’s past criticism of an India-backed energy project and his party’s historical anti-India stance have fueled speculation about a potential shift towards closer ties with China. However, he has pledged to work with all countries for the benefit of Sri Lanka, rejecting the notion of power divisions in the world.
The new leader’s foreign policy stance will be closely observed, particularly regarding his relationship with India. Experts suggest that a strong partnership with India, a regional player, will be crucial as Dissanayake focuses on economic development.
Navigating the complexities of the IMF bailout, managing debt restructuring, and maintaining delicate relationships with key creditors will be key challenges for Dissanayake’s administration. The outcome will likely determine the future trajectory of Sri Lanka’s economic recovery and its position in the global geopolitical landscape.
