In 2024, Sri Lanka witnessed seismic political shifts. In the second half of this year, voters installed a hitherto untried president and a new government, with the fervent hope that the old order should give way to a better new order. It’s taken the rather conservative Sri Lankan voters 76 years to move away from feudal parties and experiment with a party mostly remembered for two violent uprisings in the South. The September and November electoral results would appear to be the culmination of the 2022 political unrest that demanded a “system change”.
Since the assumption of office, both the president and his government appear to have eased themselves into work without fanfare and focus on immediate tasks. The very first was to avoid disruption to ‘normalcy’. As the government marks its first month in office, it has ensured continuity through the International Monetary Fund (IMF) formula—prudent, given that the island’s economy is in tatters and requires much repair.
On December 3, President Dissanayake made the government’s policy statement, which contained a practical acceptance of the agreement with the IMF reached by President Ranil Wickremesinghe, with a commitment to implement it in full. The President told parliament the island’s economy was hanging by a thread and there was no room for any mistakes.
For a man mandated to introduce radical economic and political changes to Sri Lanka, it cannot come easy. During the presidential election campaign, Dissanayake vowed to renegotiate the IMF bailout to ensure austerity measures do not weigh too heavily on the island’s poor. His was a mandate to snap out of the rejected economic model of multilateral borrowing. Easier said than done, as Dissanayake and his team soon found out.
Some serious efforts were made during Wickremesinghe’s rule to stabilise the economy within the constraints Sri Lanka had to operate from. People, angry with the Rajapaksa regime and viewing Wickremesinghe as an extension of the Rajapaksa interests, voted for an overwhelming political change twice this year.
The outgoing Wickremesinghe warned against changes to the agreement that could delay the fourth tranche, sending immediate economic shockwaves. In a quiet commitment to continuity, Dissanayake also retained the governor of the central bank and the secretary to the treasury and the ministry of finance, who have been leading the reform process.
Despite minor rumblings, the NPP government remains quite popular as people wait for the fulfilment of electoral pledges. As the government naturally avoids any rash moves on the economic front, the absence of the promised renegotiations of the IMF bailout is not lost on the public.
The NPP’s commitment to revisit the IMF’s bailout considered the impact of harsh austerity measures, especially following the 2022 economic collapse that spiked inflation and food insecurity. A ‘forensic audit’ on external debt has already been promised, and despite the political undertones one may read in that, it would be in the government’s interest to do so.
However, the NPP has remained consistent on the ‘continuity’ aspect of the agreement and the ongoing debt restructuring, to rest some fears about the possibility of a complete disruption of the IMF agenda, causing economic instability and unsettling external creditors. This again spells a responsible and pragmatic approach despite the daunting challenges ahead.
The JVP/NPP also has a long-defended stance of managing key state-owned enterprises in public ownership and may mean the possibility of restructuring non-strategic enterprises and a move to increase domestic production and exports to boost external reserves.
It is important to acknowledge the evolution of the JVP/NPP’s economic approach as a far cry from any previous. Today, in practice, it is pro-free trade, pro-export and pro-foreign investment. There will be sectors that will experience private sector-led growth but with expanded welfare budgets to serve the island’s vulnerable sections.
When the previous government entered the 17th loan agreement with the IMF in 2023, the key targets included a reduction in the ratio of public debt and a reduction in government borrowing to 13 per cent of GDP between 2027 and 2032, among others. But the achievement of several targets will come with political costs and the NPP is aware of possible electoral repercussions.
The year 2022 certainly was a political reformist moment. There was genuine interest in finding the reset button for the island’s flagging economy and the body politic, but it also showcased people’s reluctance to accept heavy jolts, economic and political. Gotabaya Rajapaksa, the president who received the largest political mandate, was forced to resign through a series of public agitations for allowing the island to hit the economic nadir. It carries a permanent lesson for any Sri Lankan government about public tipping points.
The coming year will see the government going to poll again, this time at the local authorities and provincial levels. In addition to addressing the needs of the country’s most economically vulnerable people, the government will serve its own political cause to manage some public expectations by honouring some promises, particularly in the areas of reducing the cost of living and taxation.
In 2025, there will also have to be greater clarity around the government’s economic agenda. The NPP has committed to reducing government expenditure, but how economic consolidation will take shape in 2025 and beyond is still unclear. There needs to be the formulation/implementation of an economic development agenda that can cater to short, medium and long-term needs. Some of it will have to be rapid and convincing to the people.
The view from the opposition is different to the ringside view of the government. There is overwhelming public trust in the new government as people hope against hope that this would be Sri Lanka’s last chance to become both politically and economically stable. Much rides on those public aspirations.
President Dissanayake will do well to wear the thorny crown with immense care into 2025 and beyond, avoiding any misstep, for his is an administration that is keenly watched, not only by opponents for fault-finding, but by the people who treat it as their last chance for recovery.
(Views are personal)
(dilrukshi@cir.lk)
(dilrukshihandunnetti@gmail.com)
Dilrukshi Handunnetti | Award-winning journalist and lawyer. She is a founder and director of the Colombo-based Center for Investigative Reporting (CIR)