Sri Lanka is preparing for its first presidential election since the onset of its worst economic crisis in decades, scheduled for September 21. This election is not merely a significant political event but also a pivotal moment for the country’s ongoing recovery and future stability. The economic crisis that began in 2019 has left deep scars on the nation’s economy and its people, making this election a crucial test of confidence in the current administration’s efforts to steer the country back on track.
The upcoming presidential election is being watched closely both domestically and internationally. It will determine whether the reforms implemented under the current administration will continue or if a new direction will be taken. With approximately 17 million of Sri Lanka’s 22 million population eligible to vote, the stakes are high.
The economic collapse in Sri Lanka, described by many as the worst since its independence in 1948, has led to unprecedented levels of inflation, a severe depletion of foreign exchange reserves, and widespread shortages of essential goods. The crisis was triggered by a combination of poor policy decisions, including massive tax cuts and a shift to organic farming, compounded by external shocks like the COVID-19 pandemic and the 2019 Easter bombings. These factors created a perfect storm that resulted in severe economic turmoil and political instability.
The election will not only decide the political future of the country but also its economic trajectory. As Bhavani Fonseka, a senior researcher at the Colombo-based Centre for Policy Alternatives told Reuters, “An election being called is extremely important for democracy but now the election commission must be allowed to do what they are mandated to do. Having a free and fair election is essential.”
The economic crisis in Sri Lanka is rooted in a series of policy missteps and external shocks. In 2019, the government implemented significant tax cuts that depleted the treasury, just as the COVID-19 pandemic began to impact the global economy. The decision to shift to organic farming led to a drastic reduction in agricultural output, further exacerbating the economic situation. The 2019 Easter bombings also had a severe impact on the tourism industry, which is a vital source of revenue for the country.
By 2022, Sri Lanka found itself unable to meet its debt obligations and declared bankruptcy. The country suspended repayments on approximately $83 billion in domestic and foreign loans, leading to a severe foreign exchange crisis. This crisis resulted in widespread shortages of essential goods such as food, medicine, fuel, and cooking gas, along with extended power outages. Public anger over the handling of the crisis culminated in mass protests, forcing then-President Gotabaya Rajapaksa to resign in July 2022. Ranil Wickremesinghe was subsequently elected by Parliament to serve the remainder of Rajapaksa’s term.
Under Wickremesinghe’s leadership, and with the help of a $2.9 billion bailout from the International Monetary Fund (IMF), the government has taken significant steps to stabilize the economy. Inflation has dramatically decreased from a peak of 70 per cent in September 2022 to just 1.7 per cent in June 2023. Additionally, the Sri Lankan rupee has strengthened, and foreign exchange reserves have been rebuilt. Sri Lanka’s economy is projected to grow by 3 per cent in 2024 after contracting by 2.3 per cent in 2023 and 7.3 per cent in 2022 during the height of the crisis.
The country also secured a $10 billion debt restructuring deal with bilateral creditors, including Japan, China, and India. This deal allows Sri Lanka to defer repayments for four years, saving $5 billion. Additionally, the IMF program has provided a framework for fiscal and monetary stability, although the measures required to meet the IMF’s conditions, such as raising electricity bills and imposing heavy new income taxes, have been unpopular with the public.
Incumbent President Ranil Wickremesinghe is expected to run for re-election. His main rivals are opposition leader Sajith Premadasa and parliamentarian Anura Kumara Dissanayake, who leads the Marxist-leaning Janatha Vimukthi Peramuna (JVP). Both Premadasa and Dissanayake have publicly stated their intentions to revamp the IMF program to reduce the cost of living and ease the debt repayment burden on Sri Lankans.
Wickremesinghe’s administration has been negotiating with international creditors to restructure Sri Lanka’s staggering debts and put the economy back on track. In March 2023, the IMF approved a four-year bailout program to help Sri Lanka. Last month, Wickremesinghe announced that his government had struck a debt restructuring deal with countries including India, France, Japan, and China. This marked a key step in the country’s economic recovery after defaulting on debt repayment in 2022.
The agreements allow Sri Lanka to defer all bilateral loan installment payments until 2028 and repay the loans on concessional terms, with an extended period until 2043. These agreements cover $10 billion of debt, significantly easing the immediate financial pressures on the country.
Nominations for the presidential election are to be submitted by August 15. The President of Sri Lanka is elected via a limited ranked voting system, where voters can express up to three ranked preferences. If no candidate receives over 50 per cent of valid votes on the first count, the second and third preferences are distributed until one candidate achieves an outright majority.
Despite the progress made under Wickremesinghe’s administration, Sri Lanka’s recovery remains fragile. Higher taxes imposed under the IMF program, prolonged inflation, and a stagnant job market have plunged a quarter of the population into poverty and pushed thousands to migrate. The economic hardships have caused significant public dissatisfaction, which the opposition candidates are likely to tap into during their campaigns.
Sri Lanka’s economic recovery is still in its early stages, and analysts warn that any attempts to reverse the current reforms could lead to another crisis. The election will also be a test of Sri Lanka’s democratic institutions. The independent election commission, tasked with ensuring a free and fair election, will play a critical role in maintaining the integrity of the electoral process. The world watches closely to see how Sri Lanka will navigate its path forward amidst ongoing economic challenges.
