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The coming months could be a period of social unrest, political uncertainty and political instability that would hinder economic recovery and growth. Widespread strikes and protests could hamper the economic recovery in many ways.

The implementation of the government’s reform programmes is likely to be stalled. Already, about 40 percent of IMF conditions are assessed as not implemented. Trade union protests, too, could hamper reforms and the implementation of the good governance programme. The IMF reform programme could be stalled. This is especially so in respect of the privatisation of state-owned enterprises.

SLPP opposition

Former President and SLPP leader Mahinda Rajapaksa has asked the President to stop the privatisation of state-owned enterprises until a new government is formed. Since the SLPP has a majority in parliament, the president is expected to comply with this.

IMF programme

Privatisation of state-owned enterprises is vital for economic efficiency and is an important condition for the continuation of the IMF’s Extended Finance Facility (EFF). Therefore, the IMF facility itself could be imperilled.

Foreign debt

The finalisation of the foreign debt restructuring by the end of June is expected to boost the economy. Apart from the third tranche of the IMF facility, foreign assistance, especially project loans and foreign investments, is expected from the Asian Development Bank, the World Bank, the International Finance Corporation (IFC) of the World Bank, and the Japanese government, among others. However, the current political uncertainty, strikes, and political unrest could deter these inflows.

Elections

The country is preoccupied with speculation on whether the presidential or parliamentary elections will be held first. While the presidential election has to be held by October 16, the date of the parliamentary election is unclear.

At the time of writing, there was heightened speculation that parliament would be dissolved around the time this column was published. Sources close to the SLPP leadership have said so.

Uncertainty

Such uncertainty in political conditions is not conducive to the economy’s stability and functioning. The economic growth that was expected in the second half of this year may not be realised. In any event, this year’s economic performance would be retarded by the political unrest and elections.

Election outcomes

The economy’s performance could also be retarded by a stalemate in the presidential election and no party having a parliamentary majority. It is most likely that no presidential candidate would get over 50 percent of the vote, even after a second count. This could lead to a political crisis.

Hung parliament

Similarly, the parliamentary elections are not likely to result in any party securing 113 seats to form a stable government. A coalition government formed by two parties with different economic policies would not ensure the effective implementation of economic policies.

These political conditions and social unrest would destabilise the economy and retard economic growth.

Elections

There is uncertainty over which election—presidential or parliamentary—will be held first. Since there are reasons to believe that the presidential election would be held first as the early dissolution of parliament would be resisted by many new parliamentarians who would lose their pension rights, persons close to the powers that be have said, in no uncertain terms, that the general elections would be held first. This is due to the SLPP having hopes of gaining some seats in parliament.

So the speculation continues.

Political instability

Whichever election is held first, a period of political instability is likely to ensue. In the current political climate of the country, none of the three frontrunners for the presidency is likely to obtain over 50 percent of the vote cast. The second preference vote, too, is unlikely to give any of the three frontrunners many votes. How this stalemate would be resolved is uncertain. What is certain is that it would lead to much confusion and uncertainty.

Parliamentary elections

The parliamentary election, too, is unlikely to give any single party a clear majority of 113 seats in parliament. What sort of coalition will emerge, how stable it will be, and what policies such a coalition will pursue is uncertain. The consequences of such coalition economic policies are difficult to envisage. As in the past, a coalition could weaken economic policy implementation.

Political unrest

These political conditions could lead to severe political and social unrest. A violent Aragalaya, too, is not unlikely. Invariably, the country will face severe political instability and social unrest that will impair economic stability and growth.

Economy

Such unstable conditions could be a severe threat to the fragile economy striving to recover. We may be able to get the third tranche as the reform programme would be stalled and the continuation of the IMF’s Extended Finance Facility (EFF) could be stalled. Hopefully, the foreign debt restructuring will be over before these unsettled conditions emerge. Whether the expected foreign assistance and project loans will materialise is uncertain.

Critical time

We are at a critical time when the economic policies that will be pursued remain uncertain. The sooner the political turbulence passes away and a stable government is in place, the earlier the economic recovery programme could be implemented.

Hopefully, the social and political unrest and the political uncertainty will be short-lived. The two elections would, we hope, provide some stability, and a government that follows a pragmatic economic policy would emerge. If the coming months do not result in stable political conditions and the government does not pursue pragmatic policies to stabilise the economy and ensure growth, the country’s economic future is indeed bleak.

Summary

The run-up to the two elections could be a period of political and social unrest. The current spate of trade union actions may also continue. The period after the elections could be one of political instability with no clear winners. A stalemate in the presidential poll could lead to considerable political uncertainty and chaos.

Conclusion

From whatever angle one looks at the country’s immediate future, instability and unrest are likely. Let us hope that this expectation of the writer and many others will be wrong and that the predictions of several astrologers that a new era of stability and economic prosperity will come to pass.

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