Uncertainty about forthcoming elections may jeopardise Sri Lanka's economic recovery: ADB

Reflecting upon the deteriorating economic situation in Sri Lanka, the Asian Development Bank (ADB) has said there might be a potential decline in the country's economic prospects due to the "uncertainty" surrounding the next elections in the island nation.

Sri Lanka will be holding a presidential election by the end of this year and a parliamentary election, which is due mid-next year. 
However, political instability still reigns in the nation as opposition parties vow to undo the present International Monetary Fund (IMF)-sponsored changes, which the public finds divisive.

Sri Lankan President Ranil Wickremesinghe has reflected upon the possibility of another economic shutdown if the island nation doesn’t abide by the IMF programme reforms. Wickremesinghe has worked hard on Sri Lanka’s economic recovery by entering into a deal with the IMF for $2.9 billion. 

Outlining the economic risks Sri Lanka is facing, the ADB, in its South Asian chapter’s economic trends report released yesterday, said, “Among them, the most important is uncertainty associated with the upcoming elections, including any possible impact on fiscal policy and reform implementation.”

The ADB highlighted that Sri Lanka's economy shows indications of recovery, with emergent growth resuming in the second half of 2023 and predicted to continue in 2024 and 2025.

“Inflation decelerated in single digits last year following a peak in 2022 and will remain below 10 per cent in 2024 and 2025. Challenges remain, and the upcoming electoral cycle must not delay the reforms required to address the recent economic crisis. Sri Lanka needs to address vulnerability to poverty to ensure inclusive growth,” the report said.

Sri Lanka declared its first default on national debt two years ago. However, debt restructuring discussions continue.

"Delays in the completion of a debt restructuring agreement and any barriers to passing key legislation could dampen sentiment and derail growth," the authors of the research cautioned.

In March, The IMF said that it secured a staff-level agreement with Sri Lanka for the next phase, allowing it to access $337 million from the roughly $3 billion bailout agreed in 2023 for the island nation.

Two batches of $330 million each from the fund were given in March and December 2023, while the global lender commended Colombo's macroeconomic policy measures, stating that they are beginning to bear fruit.

(with inputs from PTI)