Sri Lanka's New President - A Shift in Politics and Geopolitics

Sri Lankans elected Marxist-leaning Anura Kumara Dissanayake as their new president, hoping that he will deliver on his pledge to fight corruption and bolster a fragile economic recovery following Sri Lanka's worst financial crisis in decades. Dissanayake beat incumbent President Ranil Wickremesinghe and opposition leader Sajith Premadasa, and he did so without having any political lineage. This was the country's first election since its economy buckled in 2022 under a severe foreign exchange shortage, unable to pay for imports of essentials. Protests forced then-President Gotabaya Rajapaksa to flee and later resign.

Sri Lanka's economy is expected to grow this year for the first time in three years, and inflation has decreased to 0.5% from a crisis peak of 70%. However, the high cost of living remains a critical issue for many voters, as millions of people are still living in poverty. Dissanayake, a candidate for the National People's Power alliance, which includes his Marxist-leaning Janatha Vimukthi Peremuna party, made promises of tough anti-corruption measures and more policies to support the poor, which boosted his popularity.

He managed to overcome his political party's violent history. The Marxist Janatha Vimukthi Peramuna (JVP) party led two armed uprisings against the government in the 1970s and 80s. His alliance, the National People's PaPeople'sch, includes the JVP, gained attention during the 2022 protests, known as the Aragalaya, meaning "struggle" in Si" hala. Sr." Lanka's foreign currency reserves had run out, so the country couldn't import essentials like fuel. Public debt had grown to $83 billion while inflation rose to 70%. The country's economic hardship was blamed on significant policy mistakes, weak exports, and years of not taxing enough. This was made worse by the Covid-19 pandemic, which hurt tourism, a critical economic driver. But many people also blamed corruption and mismanagement, making them angry at Rajapaksa and his family, who ruled Sri Lanka for over ten years.

Wickremesinghe had secured a $2.9bn lifeline from the International Monetary Fund (IMF), which is crucial to opening additional funding channels but comes with strict economic and governance policy reforms. Sri Lanka is restructuring the terms of its debt payments with foreign and domestic lenders, as mandated by the IMF. The main focus has been the country's $36bn in foreign debt, of which $7bn is owed to China, its largest bilateral creditor. The country's new president will face challenges of reviving the economy and lifting millions from crushing poverty. Sri Lanka must stick with the IMF program until 2027 to stabilize its economy, reassure markets, repay debt, attract investors, and help a quarter of its people out of poverty.

Sri Lanka has significantly recovered, experiencing lower inflation, borrowing costs, and a stronger rupee. This has been possible due to better-than-expected growth, a revitalized tourism industry, and a series of structural reforms to control public spending and increase tax revenues. Additionally, debt restructuring with bilateral lenders such as India, China, Japan, and France has helped secure additional financing from the ADB and the World Bank.

Despite improvements, Sri Lanka still faces many economic problems. Between 2019 and 2023, poverty levels more than doubled, with over a quarter of the population living below the poverty line. Sri Lanka has the world's highest interest payments to government revenue ratio, and the grace period on bilateral loan repayments will end in 2028. China is its largest bilateral creditor, and the country has become known for its relationship with China's 'debt trap' diplomacy. However, this story doesn't consider the damage caused by economic mismanagement and unwise policies by previous Sri Lankan governments. These include tax cuts, subsidy increases, debt-fueled infrastructure spending that worsened the country's financial position, and a ban on fertilizer imports that increased food imports. It also doesn't consider external factors, such as the COVID-19 pandemic and the 2019 terrorist attacks on churches and hotels, which severely harmed Sri Lanka's tourism industry.

The presence of Indian and Chinese naval vessels in Sri Lanka shows how vital the country is in the rivalry between these two countries. This has implications for the country's policies. Sri Lanka's government tends to switch between supporting India and China. Still, in reality, they cannot afford to upset either country. In January 2024, the Sri Lankan government stopped foreign research vessels from visiting due to concerns about Chinese ships. However, there are plans to lift this ban to show that Sri Lanka remains neutral in its geopolitical stance. Besides China and India, the United States is also interested in Sri Lanka. In 2023, the US International Development Finance Corporation committed to providing half a billion dollars to develop a deepwater container terminal in the Port of Colombo. These projects aim to reduce China's economic influence and show that Sri Lanka is strategically important along crucial maritime trade routes in the Indian Ocean.

Given this shift of growth center to Asia, many argue that if one wishes to dominate the world economy, it is vital to dominate the Indian Ocean. The Indian Ocean is home to indispensable Sea Lines of Communications (SLOCs) and maritime choke points. About 100,000 commercial ships pass through the Indian Ocean per year. This region handles 50% of the world's containerized cargo transportation, 30% of the world's bulk consignment, and 36% of the world's crude oil consignment. The Indian Ocean's role in global energy transportation is set to become even more significant in the next 20 years as energy demand is projected to surge. Sri Lanka plays a vital role in the Indian Ocean as its geographical setting attracts many networks of sea freight companies that can provide pendulum services to other countries. About 300 ships pass the Sri Lanka Ocean daily.

The new leader should focus on achieving Sustainable Development Goals, establishing diversified alliances, and enhancing maritime capabilities to protect sovereignty and influence in the Indian Ocean. Sri Lanka needs a renaissance in every aspect, including a new political economy model to create a production-based economy for prosperity. The country requires a new political system to overcome economic and political challenges, as many feel the current government is dominated by politicians who have been in power for decades.

Dissanayake's political vision, as set out by the JVP, is a cause for concern. The party claims to be communist but excludes Tamils and Muslims from most activities. His political stands do not attract the Tamils and worsen the situation. Dissanayake gained recognition during the 1987 anti-India protests by opposing the India-Sri Lanka accord, the only document leading to peace negotiations. The solution suggested and adopted for the Tamil question has several flaws. With Dissanayake in office, there is little chance of progress on the Tamil quest for a political solution.

The election results have a far-reaching impact on foreign policy. Despite India's recent efforts, China remains a significant player in Sri Lanka. From 2006 to 2022, China provided $11.2 billion in grants and loans for infrastructure projects in Sri Lanka, far exceeding the $97 million spent by the US during the same period. This strong relationship with China has the potential to strain relations with India and increase Chinese influence. The outcome of this election will determine Sri Lanka's economic recovery and foreign relations.

Dissanayake's leftist, populist platform could make Sri Lanka's foreign policy towards India more unpredictable. His party is more open to Chinese-backed investments than Indian projects, which could encourage China to increase its presence in Sri Lanka.

Simon Mohsin: Political and International Affairs Analyst.