Dissanayake's NPP wins big in Sri Lankans' vote for stability

India has a role to play in its economic recovery

Sri Lanka has voted decisively for stability, handing the Anura Kumara Dissanayake-led National People’s Power (NPP) coalition a two-thirds majority in Parliament following a snap general election. These results have come just two months after Mr Dissanayake’s victory against established politicians like incumbent Ranil Wickremesinghe and former president Mahinda Rajapaksa’s son Namal in the presidential election. What is more remarkable is the fact that Mr Dissanayake’s Marxist Janatha Vimukthi Peramuna (JVP), the biggest party in the NPP, has won Jaffna in the heart of the northern Tamil ethnic community, and other minority strongholds. This suggests voters here have chosen to put their bitter ethnic strife with the Sinhala majority behind them in favour of stability. These parliamentary elections complete Sri Lanka’s political transition, allowing it to focus on rebuilding economic resilience and bringing itself out of an economic crisis.

 

Mr Dissanayake ran on a platform that sought to protect the working class from austerity measures. Achieving this will depend on how he manages to free the struggling island-nation from indebtedness, the result of past reckless borrowings from international markets to finance infrastructure projects. The Covid pandemic impacted Sri Lanka’s foreign exchange inflows, as dollar earnings from tourism and tea exports shrank, even as the Russia-Ukraine war sharply raised the price of fuel. A shortage of essentials, long power cuts and hyperinflation followed, with ill-advised tax cuts putting pressure on government revenues. In May 2022, Sri Lanka made a pre-emptive default on its international payments for the first time in its history, which forced it to negotiate with the International Monetary Fund (IMF) for a $2.9 billion bailout package. The tax-and-tariff conditions imposed by this package increased prices further, leading to a revolt by Sri Lankans that forced then president Gotabaya Rajapaksa to flee. In a country where Chinese investment is noticeable, Mr Dissanayake chose to run on a platform of economic sovereignty and transparency. His key challenge will be to balance the management of external debt repayment with economic stability. Sri Lanka’s public debt rose from 91 per cent of gross domestic product in 2018 to 119 per cent in 2021. Contrary to common perception, China is not the country’s largest creditor. While it accounts for 20 per cent of the government’s external debt repayment, dollar-denominated international sovereign bonds (such as Eurobonds) account for 47 per cent. How far Mr Dissanayke’s political outlook will influence debt restructuring programmes with Beijing is an open question. 

Despite his pro-China leanings, Mr Dissanayake has expressed his appreciation of India’s efforts to help Sri Lanka in its hour of crisis. In 2021, at the height of the Covid pandemic, India sent $4.5 billion worth of assistance, a figure unmatched by any other country. Mr Dissanayake also visited New Delhi in February this year, and India’s High Commissioner was the first foreign dignitary he received as President-elect. This relationship, however, may yet be tested, considering Mr Dissanayake’s past reservations about the Adani group’s wind power project, which he earlier described as skewed against Sri Lanka’s interests, and past disagreements over a land bridge between the two countries. Given its longstanding ties with regimes across Sri Lanka’s political spectrum, it will be in India’s interests to extend all possible support to a neighbour with which it shares civilisational ties and which lies on a critical global trade route.