Uphold the law

Monday, 29 October 2018 01:21 -     - {{hitsCtrl.values.hits}}

Sri Lanka is in the middle of a political storm which, if prolonged, could impact an already pressurised economy and threaten to deepen uncertainty. On Friday, Sri Lankans were stunned when President Maithripala Sirisena removed Ranil Wickremesinghe and swore in Mahinda Rajapaksa as Prime Minister. He subsequently prorogued Parliament till 16 November and set about consolidating the change. When markets open today, many will be waiting to see the impact of these political developments.      

Many people will also be concerned about the lag in convening Parliament, which is the only institution that can decide whether the Constitution was in fact upheld in the change. The presentation of Budget 2019, which was expected this week, could now change but much uncertainty still prevails. 

Rajapaksa releasing a statement on Sunday said that the aim was to establish a caretaker government and hold Provincial elections and then move to a Presidential election as early as possible. Sri Lankans who were largely preparing for a Presidential election will now have to change their expectations.

Sri Lanka has had more than its share of political upheavals since Independence, so many investors and companies are used to factoring in political risk. Moreover, many investors in Sri Lanka tend to take the long-term view for this same reason. However, it is unlikely that such a drastic change would be palatable for fresh investors and it would also make local companies cagey about investment until a more stable environment is created. Investors also tend to be wary of countries that undermine laws. The Constitution is the basis of all law and order within a country, and disregarding that and blocking the balance of Parliament with executive power is a grave one and its continuance would undermine the strength and independence of the law on multiple fronts.

It is no secret Sri Lanka was in the midst of challenging times. Despite the increase of exports and investment, growth was slow, and external challenges of an appreciating dollar and higher fuel prices were beginning to bite. They came on top of tax increases and other changes that were necessary under the fiscal consolidation and economic reforms outlined by the Government. But, they were crucially necessary given Sri Lanka’s debt repayment commitments over the next three years.

Regardless of who ends up as Prime Minister, Sri Lanka will have to go to international financial markets to borrow to repay debts, and if risk is high, then interest rates will be correspondingly more difficult. If Sri Lanka wants to continue borrowing at competitive rates, which is crucial to bolster reserves and not miss debt payments, then political stability based on respect for law is a must. If Sri Lanka cannot borrow to meet its debt requirements it will be forced to increase taxes and freeze imports, which would make living even more challenging for Sri Lankans.

Sri Lanka also imports a significant amount of essential food items and intermediary goods needed for exports. So, a potential implementation of austerity measures would make life significantly more difficult for the public, particularly the poor. All this would of course deepen political instability, not make it any better. Therefore, in the interests of the economy, the President must work according to the Constitution and uphold the law for the benefit of all Sri Lankans.           

 

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