Sri Lanka Stability Trends and Projections May 2020
Successive years of disruptions to the economy from the disasters in 2017, 18 to Easter Sunday terrorist attack on April 21, 2019, to the COVID 19 in 2020 are a significant concern for Sri Lanka given the lack of a gap between the marked events for recovery. With a new government in power this year, a constitutional crisis has emerged as another bone of contention which may remain unresolved for some time; thus, the internal strategic environment continues to be a significant challenge.
COVID-19 pandemic derailed President Gotabaya Rajapaksa’s plan to hold the parliamentary elections on April 25 to win a two-thirds majority in parliament elections. Sri Lanka Election Commission (EC) announced on April 20 that the parliamentary election will be delayed due to COVID 19 and will be held on, June 20. There could be a review based on containment of COVID 19 as per EC Chairman Mahinda Deshapriya. A clearance from government and health authorities is necessary by May 15.
There are appeals for delaying the elections and convening the old parliament to overcome a constitutional crisis as the new parliament after polls is to be in place by June 02. President Rajapaksa has refused calls to reconvene old parliament citing legal restrictions even after the opposition promised to support government policies to contain COVID-19. The Government lacks parliament’s sanctions for budgetary expenditure, but this has not deterred President Rajapaksa from denying reconvening of the parliament.
The Rajapaksa-led Sri Lanka Podujana Peramuna (SLPP) is favourite to win more seats in the parliamentary election as and when it is held as the main opposition the United National Party (UNP) and its allies continue to be a divided lot. The immediate challenge is to contain the domestic spread of COVID-19. A prolonged outbreak could lead to an economic downturn, unemployment and more people moving into poverty which will create political concerns as well as per a World Bank Report.
Regional and International Relations
President Gotbaya Rajapaksa fulfilled an election promise when Sri Lanka’s foreign minister Dinesh Gunawardena informed the 43rd session of the UN Human Rights Council (UNHRC) meeting at Geneva that Sri Lanka was withdrawing from co-sponsorship of the UNHRC Resolution 30/1 on the country’s accountability for alleged human right violations committed during the Eelam War. COVID 19 has led to a lukewarm reaction from the international community so far, but there could be a challenge in the years to come. President Gotbaya granted a presidential pardon to release a convicted death row prisoner former Staff Sergeant RM Sunil Rathnayake which invited considerable resentment from human rights groups.
Balancing relations between India and China continue to remain a significant diplomatic objective for the Government. With bunkering operations having commenced at the Hambantota port, it is envisaged that Chinese footprint will continue to grow even as New Delhi is resisting Colombo’s fall into China’s circuit of influence with a pliable President Gotabaya Rajapaksa known fondly as Goty in Beijing’s military circles. United States is continuing to struggle for the Government to accept the aid package under the Millennium Challenge Corporation (MCC).
Sri Lanka is saddled with substantial foreign and domestic debt which has been piling up over the years due to past disruptions and the Easter Sunday terror attack in April 2019. Thus it is not surprising that Sri Lanka’s economy is likely to be the worst affected by the current COVID 19 crisis. A ranking published by The Economist confirms this trend. A recession is anticipated, with annual growth estimated between -3.0 and -0.5 per cent. The external current account deficit is expected to remain favourable thanks to the reduction in oil prices and deceleration of imports, which will largely offset the decline in receipts from garment exports, tourism and remittances.
Refinancing requirements will be high, with annual gross foreign exchange requirements estimated at 6-7 per cent of GDP during 2020-2022. The fiscal deficit will further expand, and the debt level is expected to increase due to the implementation of the stimulus package and settling of arrears. The slowdown in economic activity will trigger sharp jobs and earnings losses.
The apparel industry, which accounts for about half a million jobs, has announced significant job cuts due to low global demand and a shortage of raw materials. Meanwhile, agricultural production is expected to be mostly undisrupted, amid government efforts to ramp up domestic production and import substitution. However, export-related subsectors will be negatively affected. As a result of deteriorating labour market conditions, the USD 5.50 poverty rate is projected to increase to 41.7 per cent in 2020.
Sri Lanka is vulnerable to uncertain global financial conditions as the repayment profile requires the country to access financial markets frequently. A high deficit and rising debt levels could further deteriorate debt dynamics and negatively impact market sentiments.
As per the World Bank report on South Asia, Central Bank of Sri Lanka (CBSL) reduced the monetary policy rate by 25 basis points, lowered the reserve rates, interest rates and six months moratorium to facilitate the industry to cope with the COVID 19. Price ceilings on essential food, as well as concessional loans and food allowances for low-income consumers (beneficiaries of the Samurdhi program), is also planned. President has also established a special fund for containment, mitigation and social welfare spending, inviting local and foreign tax-free donations. The economy would contract by 3.0 per cent, and poverty would increase to 43.9 per cent in 2020 as per the World Bank.
The majoritarian policies of the Rajapaksa government are manifesting in widespread concerns of suppression of minority rights, particularly the Muslims in the country who have been under pressure for some time after the Easter Sunday terrorist attacks. The Government has made cremation mandatory in contravention to the burial practices of Muslims and Christians. Muslims have also been accused of spreading COVID 19 and hate speech has gone on unchecked as per Crisis Watch a monthly review of the International Crisis Group (ICG).
Objections from Muslim leaders and letter from four UN Special Rapporteurs calling on President Rajapaksa to follow World Health Organization guidelines which do not stop burials had limited impact on the Government. President Rajapaksa has been consulting the power body of Prelates, Buddhist clergy in the country on socio-political issues indicating a heavy influence.
Control of the media and arrests of government critics and opposition on specious charges have continued. Amongst these have been Ramzy Razeek for an April 02 Facebook post that called for “intellectual jihad” against anti-Muslim policies and hate campaigning. United National Party politician Ranjan Ramanayake was arrested for obstructing police duties and brother of the opposition All Ceylon Makkal Congress party leader, Rishad Bathiudeen, and prominent Muslim lawyer Hejaaz Hizbullah, for alleged involvement in 2019 Easter bombings as per Crisis Watch.
Defence and Security
The President has given Sri Lanka Armed Forces the lead in managing the COVID 19. Thus, National Operation Centre for Prevention of COVID-19 Outbreak (NOCPCO) is headed by the Army Commander Lieutenant General Shavendra Silva. To restore normalcy in the civilian life, the Government has decided to relax the police curfew imposed to control the spread of COVID–19 which is being managed by the armed forces, mainly the Army. In the midst, the Army has also been assigned the responsibility for external security of the parliament. Quick Reaction Teams of the Army have been deployed for random temperature checks. Forty-one military-operated quarantine facilities are run by the armed forces. While the military is taking measures for containment, there are concerns of spread within the troops as well.
The dependence of the Government led by President Gotabaya on the Army is evident. The twin crisis – Easter Sunday attack and COVID 19 have provided the President a former military officer and Defence Secretary to lean on the armed forces. The President undertook several structural changes in national security and intelligence. In his parliamentary speech on the assumption of power last year, he listed steps being taken to strengthen the national security apparatus and is set to boost the armed forces with promotions and grants for welfare as well as professional efficiency.