Sri Lankan elections: economics dominates

• Sri Lanka’s presidential election is set for September 21, marking the first time citizens will elect their leader after the 2022 financial meltdown.
• The main poll issue is economic concerns, marking a departure from the country’s previous elections dominated by promises of “eradicating terrorism” and “good governance”.
• All main candidates promise to fix the country’s broken economy, offering policy outlines tied to an ongoing International Monetary Fund (IMF) programme.

Events in 2022
• Sri Lanka’s twin deficit problem escalated due to President Gotabaya Rajapaksa’s rash policy decisions, including significant tax cuts, an abrupt ban on chemical fertilizers, and failure to meet debt repayment deadlines.
• In April 2022, Sri Lanka announced it would default on its foreign loans as the “last resort”, leading to severe supply shortages and a mass uprising.
• President Ranil Wickremesinghe was elected to the top office through a parliamentary vote.

IMF Intervention
• In March 2023, the agreement for a $3-billion Extended Fund Facility (EFF) was finalised by Wickremesinghe, aiming to restore macroeconomic stability, safeguard financial stability, and step up structural reforms.
• The government undertook various policy measures to meet targets, including restoring taxes, increasing the Value Added Tax (VAT), and reforming state-owned enterprises.

Status of Sri Lanka’s Debt
• In June 2022, Sri Lanka sealed an agreement with the Official Creditor Committee (OCC) to restructure the debt owed to its bilateral lenders, including India.
• On September 19, 2024, Sri Lanka reached agreements in principle to restructure approximately $14.2 billion of sovereign debt with the holders of its International Sovereign Bonds.

Sri Lanka’s Economic Recovery and Impact on People

Macroeconomic Stability
• State revenue increased from 8% of GDP in the crisis year to 11%.
• Inflation dropped from 70% in September 2022 to 5.9% in February 2024.
• Sri Lanka’s economy is expected to grow around 2% to 3% this year.
• Foreign investment of around $1.5 billion made its way into Sri Lanka last year.
• Tourism industry saw double arrivals and revenue totalling over $2 billion.
• Remittances from workers, mostly women engaged in domestic work in West Asian countries, showed an uptick of over 50%, amounting to nearly $6 billion in 2023.
• Gross official reserves rose to $5.9 billion in August 2024.
• Export revenue from tea, rubber, and spices increased.

Impact on People
• Majority of Sri Lankans are reeling under the enduring impact of the crisis and the austerity measures introduced as part of the IMF-led recovery programme.
• The electricity tariff hike in 2023 threw over a million families off the grid, as they could not afford their bills.
• The reduced rate of inflation is routinely cited by the Central Bank as respite, but it has not softened the blow for consumers.
• Higher utility bills, mainly electricity and water, cooking gas, and transport costs have further drained the stagnant incomes of families.

Impact on People
• Despite official numbers appearing to scream relative macroeconomic stability, people struggle silently to put food on the table every day.
• During the crushing economic crisis, at least half a million jobs were lost, food insecurity and malnutrition became widespread, poverty doubled, and inequality widened.
• 54.9% of households in Sri Lanka are indebted, and 60.5% are grappling with a drop in household income after the crisis.