Feb 22, 2018

Sri Lanka's political system stands at a critical juncture

Sri Lanka's political system now stands at a critical juncture following the local government election defeat of the ruling coalition.

The country has been kept on its toes with delay in restructuring the state apparatus through the much awaited cabinet reshuffle in the wake of local election loss.

The move is likely to be one of many measures aimed at shoring up support for the parties in the government, official sources said.

Over the coming months the coalition will work on finalising the draft for a new constitution, which we expect to be adopted in a national referendum in 2018. The new charter will strengthen democratic institutions and the outlook for political stability.

Vulnerabilities around macro-economic fundamentals in the form of high debt to GDP ratio, the twin deficit problem (current and fiscal deficit), a weak currency and insufficient forex reserves have prompted the government to continue current fiscal policies.

Dedicated efforts have been made during the past few years towards revenue mobilisation via VAT hikes and passing of the Inland Revenue Act in the Parliament, reducing fiscal deficit and embarking a more realistic consolidation path, building-up of foreign reserves and showcasing a greater commitment towards exchange rate flexibility.