Tasks pile up for new Sri Lankan president

Wickremesinghe must bring in reforms to ease woes amid crisis, experts say

Sri Lanka’s new administration, led by President Ranil Wickremesinghe, should lose no time in working to bring relief to people hit hard by the country’s economic crisis, say analysts who point to the urgency of resolving food and fuel shortages and returning stability to the nation.

Priorities include economic reforms and the need to step up negotiations with multilateral institutions, as well as other countries, for financial aid as the nation suffers a crippling shortage of foreign currency reserves to pay for essential imports, the experts say.

Wickremesinghe, a six-time prime minister, was sworn in as Sri Lanka’s president on Thursday, a day after winning a vote in parliament for the nation’s highest office. A new cabinet is taking shape.

The government faces many daunting challenges, but with the right policies and reforms, and help from the international community, the island nation can begin the process of economic recovery, observers say.

Ahilan Kadirgamar, a political economist and senior lecturer at the University of Jaffna in Sri Lanka, said Sri Lanka has been caught in a long downturn, and “the priority now is economic relief to the people and stimulus for agricultural production to stabilize our food system”.

Rajiv Biswas, the Asia-Pacific chief economist at S&P Global Market Intelligence, said the near-term economic outlook for Sri Lanka remains extremely difficult. On the foreign currency reserves, he said they “have fallen to such low levels that imports of essential products such as oil, medicines and fertilizers have largely ceased”. This has resulted in severe disruptions to the economy.

Lawrence Loh, director of the Centre for Governance and Sustainability at the National University of Singapore Business School, said: “The current leadership determination is a critical development but the various political constituencies will still have to work together to address the country’s problems.”

Loh added that many of these problems have built up over recent years due to what the analyst called a fundamental deficiency in economic governance.

Biswas said the timing of any economic recovery will depend upon when new foreign exchange financing can be agreed with multilateral institutions, like the International Monetary Fund and the World Bank, or from bilateral donors such as India and China.

Fuel shortages

Ganeshan Wignaraja, a senior research associate at the Overseas Development Institute, a Londonbased think tank, said: “Sri Lanka needs bridging finance for essential imports of food, fuel and medicines” as an IMF program worth $3 billion to $4 billion — already under discussion — will take some time to work.

While the main responsibility for course correction is in the hands of Sri Lanka, it cannot be done without the support and cooperation of donor countries, international donor agencies and creditors, said Bernard Goonetilleke, chairman of Sri Lankan think tank the Pathfinder Foundation.

China’s role in this regard cannot be overemphasized, said Goonetilleke, a former Sri Lankan ambassador to China.

Biswas said that over the long term, Sri Lanka has the potential for “sustained rapid economic growth” based on “a range of export industries, notably tourism, agricultural products as well as industrial products such as textiles and clothing”.

Lin Minwang, deputy director of the Center for South Asian Studies at Fudan University, said that, despite all the recent turmoil, Sri Lanka still has promising prospects for an economic recovery, given the nation’s advantages in tourism.

He said that many collaboration projects with China under the Belt and Road Initiative have laid a solid foundation for the nation’s future economic growth.

“Rebuilding the economy will take some time and it is necessary to now navigate toward the right direction,” Loh said. Runaway inflation and escalating debts have inflicted damage on many countries in recent months, he added.

Kadirgamar said that inflation in many countries like Sri Lanka has been caused by global price hikes and supply shortages in the wake of the Russia-Ukraine conflict and rising interest rates in the United States.

“Other countries in Sri Lanka’s predicament should immediately prioritize and curtail imports to save foreign exchange and focus on strengthening their food system,” Kadirgamar said.

Biswas said that a number of other Asian developing countries are also extremely fragile and are facing economic crises due to “high external debt burdens, low foreign exchange reserves, local currency depreciation and rising inflation pressures, particularly due to surging global energy prices”.