Sri Lanka is gearing up for a crucial presidential election scheduled for September 21, which is expected to serve as a litmus test for President Ranil Wickremesinghe's handling of the country's severe economic crisis. The independent elections commission announced the election date, with nominations set to be accepted on August 15.
President Wickremesinghe is anticipated to run for re-election, facing stiff competition from opposition leader Sajith Premadasa and leftist political party leader Anura Dissanayake, who has garnered support following the economic turmoil.
The election comes on the heels of Sri Lanka declaring bankruptcy in 2022 and halting repayments on a substantial $83 billion in domestic and foreign loans. The country grappled with a foreign exchange crisis, resulting in acute shortages of essential commodities like food, medicine, fuel, and power outages.
The upcoming election is seen as pivotal for Sri Lanka's efforts to finalize a critical debt restructuring program and implement financial reforms outlined in an International Monetary Fund bailout agreement. The economic upheaval led to a political crisis, prompting the resignation of former President Gotabaya Rajapaksa in 2022, subsequently elevating Prime Minister Wickremesinghe to the presidency.
Under Wickremesinghe's leadership, Sri Lanka has been engaged in negotiations with international creditors to restructure its overwhelming debts and revive the economy. The IMF approved a four-year bailout program in March to assist Sri Lanka in its recovery efforts.
Recent developments include Wickremesinghe's announcement of a debt restructuring agreement with key countries such as India, France, Japan, and China, marking a significant milestone in the country's economic revival post-default in 2022.
While the economic situation has shown signs of improvement, public discontent has risen over the government's measures to boost revenue through electricity tariff hikes and imposing hefty income taxes on professionals and businesses to meet IMF conditions.
Sri Lanka's economic woes stemmed from a combination of mismanagement and the aftermath of the COVID-19 pandemic, compounded by the 2019 terrorist attacks that severely impacted the vital tourism sector. The pandemic disrupted remittance inflows from Sri Lankans working abroad, further straining the economy.
Furthermore, tax cuts in 2019 depleted the treasury just as the pandemic hit, leading to a sharp decline in foreign exchange reserves and rendering Sri Lanka unable to finance imports or stabilize its currency, the rupee.
Under the debt agreements, Sri Lanka will be able to defer bilateral loan payments until 2028 and repay loans on concessional terms, extending until 2043, covering $10 billion of debt. The agreements aim to reduce debt payments to less than 4.5% of GDP between 2027 and 2032, down from the previous 9.2%.
