A twist in the tale?

Friday, 7 December 2018 00:00 - - {{hitsCtrl.values.hits}}

As Sri Lanka awaits the decision of the Supreme Court, likely today, most people are hopeful of this signalling a way forward to end the constitutional deadlock that has gripped the country for six weeks.

Since 26 October, political turmoil triggered by President Maithripala Sirisena’s appointment of MP Mahinda Rajapaksa as Prime Minister has seeped into the economy and, with the Interim Order given by the Court of Appeal, threatens to reduce functions of key Ministries as well. The legality of decisions made by Cabinet have also raised concerns.

Since the start of the constitutional stalemate, rupee depreciation accelerated and there are concerns this may continue for the next several months as the Central Bank does its best to protect reserves for debt repayments but also allow for the gradual moderation of the currency. As an economy dependent on imports and also facing significant debt repayments, Sri Lanka’s politicians need to focus on the overall health of the economy rather than dishing out sporadic tax cuts to improve their popularity in case of an upcoming election, or holding rallies.

Central Bank Governor Dr. Indrajit Coomaraswamy this week repeated calls that failing to meet Budget deficit targets or increasing public expenditure by reducing taxes for short-term popularity gains would undermine fiscal consolidation measures.

The constitutional deadlock triggered by the actions of President Sirisena for the benefits of a few politicians is now in danger of bringing the entire country to a halt. Due to the Interim Order by the Court of Appeal, there are legal questions over the actions of the Cabinet and its Secretaries. President Sirisena calling on the Cabinet Secretaries to continue their work regardless of the Interim Order is deeply concerning. It is also worrying that Sri Lanka is heading to a new year without a Budget at a time when serious macroeconomic management is essential to foster growth.

According to Fitch, Sri Lanka has to repay an estimated $ 20 billion from 2019-2022. Given these volumes, it is likely that the Central Bank would have to go to international financial markets to raise capital. In such a situation, it is imperative that the International Monetary Fund’s (IMF) Extended Fund Facility is allowed to come to a conclusion in June, not merely because of the $ 1.5 billion that would be transferred to Sri Lanka but more importantly because the program will reassure markets and allow Sri Lanka to borrow at moderate interest rates.

It is now time for President Sirisena, MP Mahinda Rajapaksa, and other key political leaders to put aside their political differences and find a way to democratically resolve this standoff as soon as possible. The Supreme Court Order obviously needs to be implemented, but the times also require for President Sirisena to move beyond the strict letter of the law and work to restore democracy to a system that has been placed under intense pressure since 26 October. The Executive, Parliament, and Judiciary powers need to work in balance for Sri Lanka to reap the best that the democratic governance system has provided.