Discussing Sri Lanka’s Local Election, Economic Affairs and More

W.A Wijewardena is an independent analyst. From 2000–2009, he served as Deputy Governor of the Central Bank of Sri Lanka.

This interview has been edited lightly.

What’s your take on the results of Sri Lanka’s local government election? Why did the United National Party and the Sri Lanka Freedom Party do so poorly?

The midterm elections had been postponed for two years by the government hoping that it would get a better opportunity to meet challenges posed by the “Joint Opposition” led by the former president Mahinda Rajapaksa. However, over the three-year period, the pendulum swung away from the government due to a host of factors.

On the economic side, the government was planning to move forward along the free market economy line linking Sri Lanka to the rest of the world. This was opposed by the local businessmen who feared competition and sought protection. The Rajapaksa group supported their case promising the establishment of a national economy free from the influences of the West, India and China. The government fuelled that campaign by leasing Hambantota Harbor to the Chinese, making plans to hand over Mattala Airport to the Indians and proposing to sign free trade agreements with India, China and Singapore.

On the corruption side, the government was accused of failing to take effective action against the alleged corrupt activities by the former Rajapaksa regime. On top of this, Prime Minister Ranil Wickremesinghe and his close team of advisors got themselves involved in a bigger corrupt deal, namely, the Central Bank bond scandal. It was obvious to everyone that the prime minister was trying to sweep the scandal under the carpet by scuttling all investigations by the Bribery Commission, the Parliamentary Committee on Public Enterprises and other law enforcement agencies.

The President [Mathripala Sirisena] was forced by civil society activists to appoint a commission of inquiry with powers to summon witnesses when the prime minister was trying to hide it. The revelations at the commission bared full facts that led even to the resignation of a top leader of the [United National Party] UNP, the former minister of finance. The Rajapaksa group effectively established in the minds of voters that the Wickremesinghe government was more corrupt than any other government in history.

On the national ideology side, there was a clear dichotomy between the Wickremesinghe government and the Rajapaksa group. Wickremesinghe represented a minority friendly, religious diversity tolerant, national reconciliation-seeking ideology. In contrast, Rajapaksa stood for Sinhala-Buddhist hegemonic ideology. The latter ideology was driven strongly to the hearts of the voters in predominantly Sinhala-Buddhist areas. The [Sri Lanka Freedom Party] SLFP led by President Sirisena tried to capture this ideology away from Rajapaksa in the last six to twelve months, but the voters had rejected his approaches. The votes polled by SLFP were mostly made up of the protest votes cast by UNP supporters who did not agree with the lousy way Wickremesinghe handled the Central Bank bond case.

Did anything about the results surprise you?

Not at all, because it was clear from the beginning that the Ranil Wickremesinghe government had failed to deliver on its promises made at the 2015 presidential election followed by the August 2015 general elections. Day by day, the Rajapaksa group was gaining ground with Sinhala-Buddhist voters, while the Wickremesinghe government was seeking to rely on a possible split of anti-UNP votes between Rajapaksa and Sirisena. At the end, Rajapaksa managed to run away with all the anti-UNP votes — leaving Sirisena to depend on the UNP breakaway votes.

How has the coalition government fared on economic issues? What are the most important economic reforms that have not been implemented? And, do you expect any of those reforms to be pushed through within the next two years?

There was no agreement on the type of economic policies to be pursued by the coalition government partners. The UNP, led by Wickremesinghe, wanted to introduce a social market economy policy with greater openness to international trade. Outlining this policy, Wickremesinghe delivered two economic policy statements in Parliament, one in November 2015 and the other in October 2016. Then, it was codified into a single strategy document called Vision 2025, and it was issued in mid-2017. There was no attempt at getting the SLFP to sign off on any of these documents. Hence, policy-wise, the two leading parties did not see eye to eye. Whenever a reform policy was proposed by the UNP, it was objected to by the SLFP. Hence, the reform agenda got itself derailed.

The casualty was the economy which showed stress on all fronts. Growth got decelerated from close to 5% in 2015 to less than 4% in 2017. Since reforms were delayed, no worthwhile foreign direct investments flowed to the country. Public debt began to accumulate creating debt servicing problems; during 2018–20, the lined up debt servicing charges are expected to exceed the estimated revenue of the government.

On the external side, exports stagnated, while imports ballooned. The resultant balance of payments difficulties put pressure on the exchange rate to depreciate. On the macroeconomy side, two worthwhile gains during the last three-year period were improving the revenue base of the government and taming inflation by the Central Bank. Surely, the consolidation of these two achievements will help country to reap benefits in the medium to long-run. But, immediately, the economic stresses have made any forward movement difficult.

Given the current political instability, it will be a Herculean task for the government to introduce a national level reform program. My prediction is that its time and energy would be spent mostly for tackling micro issues that would not help Sri Lanka to steer itself on a long-term growth path.

Some analysts and commentators have suggested that, given the local government elections results, there’s really no chance for major reform in the next couple years. Do you agree?

I agree, as I have said in the previous section. The major reforms needed involve the reforms of public enterprises, education reforms allowing the private sector to play a major role, deregulation and liberalization of the economy, tariff reforms and reforms needed to promote competition among local businesses.

These are very painful reforms and the Rajapaksa group is hell-bent on mobilising the public against them. This will be reinforced by the apathy and hostility shown by the SLFP section of the government to the reform agenda.

Will the coalition manage to stay together until 2020? How would you describe the alliance?

As it is, there are signs of dissension. The SLFP and a section of the UNP want Prime Minister Wickremesinghe to step down immediately. The latter has bought time for three months promising that he would first introduce necessary reforms within the UNP. This has angered his opponents both within and outside the party. Recently, the move to reshuffle the cabinet was scuttled by the SLFP and Wickremesinghe managed to stage only a token change in portfolios which were named by his own party stalwarts as a ‘comedy’ and a ‘joke.’ Given this situation, the alliance is fragile and shaky.