Uncertainty over impending elections could risk Sri Lanka’s economic recovery: ADB

The “uncertainty” over the impending elections in Sri Lanka will cause a possible downward trend in the country’s economic outlook, the Asian Development Bank (ADB) has said.

The island nation is set to face a presidential election in the last quarter of this year, while the parliamentary election is due mid-next year.

However, political uncertainty prevails in the country as opposition parties have pledged to reverse the current IMF-linked reforms, which have proved to be unpopular with the masses.

President Ranil Wickremesinghe, who has steered the recovery programme by going into a bailout deal with the International Monetary Fund (IMF) for a USD 2.9 billion facility, maintains that the island could once again face economic collapse if the IMF programme reforms are not adhered to.

Outlining the economic risks Sri Lanka is facing, the ADB in its South Asian chapter’s economic trends report released yesterday said, “Among them the most important is uncertainty associated with the upcoming elections, including any possible impact on fiscal policy and reform implementation.” The ADB noted that there are signs of economic recovery in Lanka and emerging growth had revived in the second half of 2023 and is expected to continue in 2024 and 2025.

“Inflation decelerated in single digits last year following a peak in 2022 and will remain below 10 per cent in 2024 and 2025. Challenges remain and the upcoming electoral cycle must not delay the reforms required to address the recent economic crisis. Sri Lanka needs to address vulnerability to poverty to ensure inclusive growth,” the report said.

It’s been two years since Sri Lanka declared its first-ever default of sovereign debt. The negotiations for debt restructuring continue.

“Delays in the completion of a debt restructuring agreement and any barriers to passing key legislation could dampen sentiment and derail growth,” the report warned.

The IMF in March said it had reached a staff-level agreement with Sri Lanka for the next phase that would enable it access to USD 337 million from the nearly USD 3 billion bailout approved in 2023 for the island nation.

Two tranches of USD 330 million each were released in March and December 2023 even as the global lender praised Colombo for its macroeconomic policy reforms, which it said, “are starting to bear fruit”.

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