On September 22, 2024, Sri Lankans voted for a new course in their government, naming a communist activist as its leader.
Anura Kumara Dissanayake’s rise is a departure from the traditional parties and politicians who are to blame for the country’s 2022 economic decline.
Dissanayake referred to the success as a “fresh start” for Sri Lanka, but he will still need to handle the financial baggage that his predecessors left behind and the effects of the painful poverty demands for an International Monetary Fund mortgage.
The Conversation spoke with Vidhura S. Tennekoon, an Indiana University economist with an emphasis on Sri Lanka’s market, to describe the challenge facing the new president and how Dissanayake will approach it.
What do we hear about Sri Lanka’s fresh president?
Anura Kumara Dissanayake leads both the National People’s Power empire, or NPP, and the Janatha Vimukthi Peramuna, or JVP. Rooted in Communist philosophy, the JVP was founded in the 1960s with the aim of seizing electricity through a socialist revolution.
The party then shifted to democratic elections and has been so for more than three decades following two unsuccessful armed rebellion in 1971 and 1987-89, which led to the deaths of tens of thousands of lives.
Prior to this election, the JVP remained a small third party in Sri Lanka’s social landscape, while the majority of energy moved between relationships led by the United National Party and the Sri Lanka Freedom Party, or their ilk.
In 2019, under Dissanayake’s command, the NPP was formed as a communist alliance with several other businesses. While the JVP continues to adhere to Communist rules, the NPP adopted a center-left, social democratic system – aiming to get broader public assistance.
Despite these attempts, Dissanayake garnered only 3 % of the voting in the 2019 national poll.
However, during the 2022 financial problems, the political scenery drastically changed. Some Sri Lankans, frustrated with the two traditional functions that had governed the country for over seven years, turned to the NPP, seeing it as a reliable alternative.
The group’s anti-corruption approach, in particular, resonated strongly because some people blamed political problem for the economic decline.
It helped provide 42 % of the ballot to Dissanayake.
Although it is a major accomplishment, it also marks a historic milestone for Sri Lanka because candidates from the two standard parties received the majority of the vote, and Dissanayake is the first leader to get elected without bulk support.
His main concern will be obtaining a legislative majority in the upcoming elections, which is a necessary stage for his leadership to properly manage.
What kind of business is Dissanayake obtaining?
Sri Lanka experienced the worst economic crises in its background two and a half years earlier. The nation struggled to pay its bills as foreign reserves almost ran out, leading to a significant shortage of important goods.
Standard blackouts became a part of daily life, as well as longer lines for cooking oil and gas. The Sri Lankan rupee dropped to a record low, causing 70 % prices. The nation’s first default on its foreign sovereign bonds was the country’s economy, which was contracting.
In response to this, a significant opposition action was born, which led to the resignation of Gotabaya Rajapaksa. In July 2022, Parliament appointed Ranil Wickremesinghe to finish the remaining of Rajapaksa’s name.
In the two years that followed, Sri Lanka’s market made an unexpectedly fast healing under Wickremesinghe’s management. After securing an arrangement with the International Monetary Fund, the money stabilized, the central bank rebuilt foreign resources, and inflation fell to single figures. The business had grown by 5 % by the first half of 2024.
The government effectively restructured its private loan, followed by a reform of its diplomatic debt – that is, government-to-government money, mainly from China but also from India and Western counties, including the United States. An agreement was reached with foreign borrowers just days before the election to rebuild the remaining royal loan.
Despite these accomplishments, Sajith Premadasa and Dissanayake, the opposition chief, and Wickremesinghe won the election for president. Wickremesinghe’s unpopularity was generally a result of the harsh austerity measures put in place as part of the IMF-backed stabilization program.
Dissanayake then inherits an sector that, while more secure, remains vulnerable. Yet as voters anticipate him to fulfill common demands, he will have limited room to run away from the carefully planned financial course that his predecessor had charted.
How does Dissanayake plan to improve Sri Lanka’s sector?
Dissanayake will probably pursue policies that reflect the political parties’ social decisions rather than his own opinions as a leader of the Marxist party. He emphasizes the importance of “economic democracy,” and advocates for an economic system where actions are coordinated through a central government program.
His group believes that the overall quality of life should be taken into account when determining growth rather than just economic growth. They argue that people need more than just simple needs — they require safe housing, food, health care, training, access to technology and enjoyment.
Dissanayake’s long-term perspective is to convert Sri Lanka into a production-based market, focusing on industries like manufacturing, crops and data systems rather than services industries.
To reduce the need for imports, one of the important guidelines is to encourage local production of all worthwhile food products. To help these actions, the NPP plans to establish a growth bank. Moreover, they NPP proposes increasing state spending on education and health care, in line with Sri Lanka’s history of providing free, widespread exposure to both.
Where do IMF funding end now?
Generally, Dissanayake’s group has been critical of the IMF and its legislation tips. Given the seriousness of Sri Lanka’s economic problems, Dissanayake has acknowledged the need to remain a part of the IMF programme for the time being. But he has vowed to restructure with the IMF to make the plan more “people-friendly”.
The personal income tax deduction level should be doubled to the current level in accordance with Dissanayake’s recommendations, as well as eliminating taxes on vital goods. In addition, Dissanayake’s group intends to add jobs to the public business despite the ongoing efforts to reduce the authorities workforce to manage the deficit.
Dissanayake’s populist policies, aimed at attracting large support during the promotion, will eventually burden government revenues while increasing expenses. To ensure debt sustainability, Sri Lanka must maintain a primary budget surplus of at least 2.3 % of GDP.
Dissanayake has pledged to stay within this target while maintaining the nation’s economic stability. His plan is to increase the effectiveness of tax collection, which he believes will bring in enough money to pay for his policies.
Additionally, his party has criticized the deal struck by Wickremesinghe’s government with international lenders, calling it unfavorable to the country. Dissanayake has promised to look for more advantageous terms. Since these agreements are already in place, it is still unclear whether the new government will attempt to renegotiate them.
Vidhura S Tennekoon is assistant professor of Economics, Indiana University
This article was republished from The Conversation under a Creative Commons license. Read the original article.