(Bloomberg) — Sri Lanka is holding its first parliamentary election since the victory of its outsider leftist president, in a test of his ambitious pledges to combat corruption and rewrite an unpopular International Monetary Fund loan program.
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Anura Kumara Dissanayake called for early polls on the heels of his victory in the Sept. 21 presidential election, widely seen as a stunning rebuke of Sri Lanka’s political elite, who voters blamed for leading the country into a historic debt default in 2022. A $3 billion IMF bailout that followed the next year came with tough austerity measures that Dissanayake’s party said increased the economic burden on the poor.
Dissanayake leads a coalition, the National People’s Power, which held just three of the 225 seats in the dissolved legislature. There are no opinion polls on voters’ preferences, but political analysts expect the NPP to capture a parliamentary majority, an outcome that would ensure powers to pass new legislation and revamp the bureaucracy.
“It is our responsibility now to keep economic stability without allowing the society to break down,” Dissanayake said on Nov. 11 during a campaign rally. “But to rebuild the country, to do what we expect to do, several political structures have to be built. The most important is the parliament.”
Top of Dissanayake’s agenda is a push to rewrite the deal with the IMF. The president has said he’s committed to continuing the funding facility struck with the Washington-based lender but wants to amend unpopular austerity measures, trim down tax increases and cuts to fuel subsidies.
“To offer an alternative to the IMF, you will need parliament’s approval,” said Aditya Gowdara Shivamurthy, associate fellow at the Observer Research Foundation, a New Delhi think tank. “Changing the constitution, not selling state-owned enterprises, trying to generate sources of revenue — this will all need parliament or parliamentary oversight.”
The NPP’s main challenger is the Samagi Jana Balawegaya, led by Sajith Premadasa, who Dissanayake defeated in the presidential vote. Former president Ranil Wickremesinghe isn’t contesting the election, but is supporting the New Democratic Front. A flurry of new independent parties are also in contention.
Polls opened at 7 a.m. local time and close at 4 p.m., with results expected to come in from early on Friday.
Sri Lanka’s benchmark Colombo All Share Index closed up 0.6% at 13,198.80 after a shortened day’s trading, while the rupee was 0.1% higher at 291.96 per dollar at 1:30 p.m. local time. Sri Lankan markets will be shut on Friday for a Buddhist festival.
IMF Bailout
IMF officials are expected to visit Sri Lanka soon after the parliamentary election to kick start a third review of the loan program, a precursor to unlocking additional funding. Once the new legislature is formed, the government will need to present its federal budget for 2025, which will be watched closely by the IMF and creditors to determine if economic targets can be met.
Already local authorities are discussing amendments in taxes and social security benefits with the IMF for new ways to reach the program’s objectives. Meanwhile, the country continues to inch closer to completing a debt restructuring with international creditors.
Sri Lanka’s main stock index, sovereign bond prices and the rupee have risen in tandem since Dissanayake’s election in September, on investor expectation that the government will strike new terms with the IMF, according to Tellimer Research.
Dissanayake’s election victory followed years of political tumult in Sri Lanka, after a debt default and economic meltdown in 2022 led to riots in the streets of Colombo and the ouster of President Gotabaya Rajapaksa. The NPP started out as a violent Marxist movement in the 1970s and 1980s, but has since renounced violence and run on a broadly leftist political platform.
Dissanayake and his backers have said they will follow a balanced foreign policy that maintains strong relations with both India and China, which have both tussled for influence in the South Asian island given its strategic location on key shipping lanes.
Dissanayake has pledged to re-assess an energy deal by Adani Green on concerns over the purchase price, and amid allegations of a lack of transparency in the awarding of the project and court challenges from environmental groups.
He has also promised to abolish Sri Lanka’s executive presidency and replace it with a system led by a prime minister more beholden to parliament, in what proponents say is intended to inoculate against a future slide to authoritarianism. Such a reform would require two-thirds support from the parliament.
“The NPP’s appeal is that it is a change,” said Bhavani Fonseka, senior researcher and lawyer at the Colombo-based Centre for Policy Alternatives. “This in a context when voters are frustrated and they are not confident with the existing actors in the political terrain.”
–With assistance from Asantha Sirimanne.
(Updates with comments from Dissanayake in fourth paragraph and market reaction in eighth paragraph)
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