Marking a month since the tragic Easter Sunday attacks, Sri Lanka is slowly starting to pick up the pieces and move forward. There are measures in place to support the tourism industry, attempts being made by private organisations to help the victims of the Easter Sunday attacks, and student numbers at schools are climbing. Even the veneer of normalcy is precious, as an economy needs stability to begin its recovery process.
Since the Easter Sunday attacks, top experts, officials and organisations have called on the Government to take decisive measures to restore public confidence. However this will be a long-term effort, which the Government, heading for Presidential elections in just five months, will have to work extra hard on. A video of dozens of vehicles honking to show their displeasure for being made to wait for a VIP motor convoy to pass gives a glimpse of how strong public anger still is towards the Government. The video, which has now gone viral, resonates with large segments of the public, especially the urban voters who are a key support base for the United National Party (UNP).
Prime Minister Ranil Wickremesinghe is still expected to be a contender at the upcoming Presidential Election. Even though other names are being bandied about, there has been no confirmation from the UNP that they will seriously consider a different candidate to their leader. On the other side of the divide, even though former Defence Secretary Gotabaya Rajapaksa has declared his intention to run for President, supporters of Opposition Leader Mahinda Rajapaksa as well as the Sri Lanka Podujana Peramuna (SLPP) have maintained pin-drop silence. There is no doubt the former Defence Secretary will be a popular candidate, but without a party to capture Parliament, there are practicality issues that still need to be resolved. The Presidential Election will set the tone for the General Election, expected in mid-2020, which could see stronger divisions across religious lines trumping the traditional party-linked vote base formations.
Political uncertainties aside, there are deeper challenges for the Government to tackle. Public debt is estimated to have increased significantly to about 90% of GDP at end-2018. According to the latest International Monetary Fund (IMF) staff report, losses of State Owned Enterprises (SOEs), particularly Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC) and SriLankan Airlines alone account for 1.3% of GDP.
The increased debt reflected weaker economic performance and the sizable depreciation of the rupee as at the end of last year. Based on disaggregated data for 2018, the composition of public debt includes debt owed by the central Government (83.3% of GDP), outstanding amount of loans guaranteed by the central Government (5.2% of GDP), and outstanding Fund credit (1.6% of GDP).
Domestic debt (mostly treasury bills and bonds) accounted for about 42% of GDP. External debt consisted of multilateral and bilateral loans (20.6% of GDP), international sovereign bonds and syndicated loans (15.4% of GDP), and non-residents’ holdings of Treasury bills and bonds (1.1% of GDP).
The report also warns that continued instability and deviation from the fiscal consolidation path where the Government has worked to increase revenue and implement economic restructuring by attempting to make the Sri Lankan economy more competitive could make the debt situation even worse. It warns that public debt could jump to 97% of GDP in a worst case scenario. This places even more onus on the Government to ensure that the economic front is not hit by political and security uncertainties in the months to come.