ADB warns that uncertainty surrounding elections may jeopardize Sri Lanka’s economic recovery

The Asian Development Bank (ADB) has raised concerns over the “uncertainty” surrounding the impending elections in Sri Lanka, warning that it could lead to a downward trend in the country’s economic outlook. With a presidential election scheduled for the last quarter of this year and a parliamentary election set for mid-next year, political uncertainty looms large as opposition parties have vowed to reverse the current IMF-linked reforms.

President Ranil Wickremesinghe, who has been instrumental in steering the country’s recovery programme through a bailout deal with the International Monetary Fund (IMF), has emphasized the importance of adhering to the IMF programme reforms to prevent another economic collapse. However, the ADB highlighted the risks Sri Lanka faces, particularly the uncertainty associated with the upcoming elections and its potential impact on fiscal policy and reform implementation.

Despite signs of economic recovery and emerging growth in the country, challenges remain, and the ADB stressed the need for timely reforms to address the recent economic crisis. Sri Lanka’s vulnerability to poverty must be addressed to ensure inclusive growth, the report stated.

It has been two years since Sri Lanka declared its first-ever default on sovereign debt, and negotiations for debt restructuring are ongoing. Delays in reaching a debt restructuring agreement and obstacles in passing key legislation could dampen sentiment and hinder growth, the report cautioned.

The IMF recently reached a staff-level agreement with Sri Lanka for the next phase of the bailout programme, enabling the country to access USD 337 million from the approved USD 3 billion bailout. While two tranches of USD 330 million each were released in 2023, the IMF commended Colombo for its macroeconomic policy reforms, which are beginning to yield positive results.