Sri Lanka’s ruling elite face judgment in first election since plunge into financial crisis

Sri Lanka will on Saturday hold its first election since it suffered a default and a political uprising in 2022, a vote seen as a referendum on the ruling elites who steered the south Asian country into economic crisis.
The presidential poll comes as Sri Lanka seeks to complete a $3 billion (€2.7 billion) International Monetary Fund (IMF) bailout agreed last year and to finalise the restructuring of the island nation’s multilateral and bilateral debt.
While dozens of candidates are on the ballot, the limited opinion polling available suggests Anura Kumara Dissanayake (55), of the leftist National People’s Power (NPP) coalition, is the front-runner in a three-way race against candidates backed by parties that have long dominated Sri Lankan politics.
Incumbent Ranil Wickremesinghe (75) served as prime minister under former president Gotabaya Rajapaksa, who fled the country in July 2022 as protesters, angered by fuel shortages and power cuts, overran his palace. Centre-right candidate and current opposition leader Sajith Premadasa (57) is the son of a late former president.
Namal Rajapaksa (38), a nephew of the ousted president, is also running, but his chances are seen as slim.
At a rally in the capital, Colombo, before the close of campaigning on Wednesday night, Mr Dissanayake vowed to crack down on corrupt politicians, abolish VAT on essential items and cut electricity tariffs and fuel prices.
“We will reopen all cases of crime and corruption and punish everyone involved,” he said to cheers from crowd members clad in NPP’s red colours. “We know how to bring in dollars to the country and how to protect dollar reserves.”
While the leading presidential candidates accept the need for the IMF bailout, Mr Dissanayake’s NPP has pledged to renegotiate its terms and called for Sri Lanka’s bondholders to accept bigger write-offs than previously agreed.
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Mr Wickremesinghe, who took over as acting president after Mr Rajapaksa was toppled, was able to put a stop to the protests and ease shortages and power cuts. He has cast himself on the campaign trail as the guarantor of financial stability who has “now completed” Sri Lanka’s debt restructuring.
“I took charge of a country that was sinking like the Titanic and guided the economy back on course,” he told a rally in the southwestern city of Galle on Wednesday. “On September 21st, I seek the people’s mandate to steer the ship to port and bring victory to the nation.”
However, Sri Lanka has yet to fully deal with the fallout from its April 2022 default, which came after it ran out of foreign currency to pay commodity import bills sent soaring by Russia’s full-scale invasion of Ukraine.
The default – the first of a series of emerging market debt crises during the pandemic – was the culmination of years of poor economic policymaking, including the launch of huge infrastructure projects funded by heavy borrowing from the country’s biggest sovereign creditor, China.
On Thursday, the government said it had reached a draft agreement with holders of $12.5 billion in defaulted bonds after the IMF objected to a restructuring deal it had reached with them in June.
The revised agreement with bondholders “almost completes” the restructuring, but still required a formal sign-off from the IMF and creditors, the government said.
Sri Lanka’s foreign currency bonds had fallen to trade at just over 50 cents on the dollar after the June deal, as investors grew concerned that a final agreement might be delayed until after the election. The bonds rallied slightly on Thursday on news that the deal was at least progressing.
The IMF has forecast that Sri Lanka’s public debt will still roughly equal its gross domestic product by 2027, signalling that the country’s finances will remain precarious for years. While austerity has pushed more Sri Lankans into poverty, economic growth has rebounded to an annual rate of about 5 per cent in the past two quarters.
Economic analysts warned that Sri Lanka’s next leader would also face the scrutiny of an IMF review before the end of the year and would still have to implement the deal with bondholders.
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“The way out is tough,” said Dhananath Fernando, chief executive of Advocata, a research think-tank. Another IMF programme, which would be Sri Lanka’s 18th, would be needed “if we can’t grow the economy and make the debt sustainable”, Mr Fernando said.
The restructuring process could be complicated by the calls from Mr Dissanayake and Mr Premadasa for changes to some of the targets agreed with creditors.
Mr Dissanayake has since 2014 led the People’s Liberation Front or JVP, a Marxist party that led bloody rebellions in 1971 and from 1987 to 1980. The JVP captured only a small portion of the vote in past elections, but has attracted a larger following since forming the NPP in coalition with other parties and groups in 2019, softening its political rhetoric and adopting the struggle against corruption in public life as its primary cause.
Under Sri Lanka’s presidential election rules, a candidate who takes more than 50 per cent of the vote wins outright. If none does, then optional second- and third-preference votes are added to the tally of the two leading candidates to decide the winner.
“It’s incorrect to describe the NPP as a Marxist grouping,” said Nishan de Mel, chief executive of Verité Research. “However, it represents something significantly more left wing than anything Sri Lanka has had since the 1980s.”
Yasiru Rasanga, a 21-year-old university student who attended Wednesday’s rally, said he supported Mr Dissanayake because “other politicians want only to get our money, but they do nothing”.
Viduri Pabasara Wickramasingha, a lecturer in nursing, said the leftist candidate had “all the experience” to remedy Sri Lanka’s economic pain. “We have this little bit of sunshine,” she said. “The NPP would make this country a better place than it was yesterday.”
– Copyright The Financial Times Limited 2024