By Rohana Jith

On September 21, over 17 million Sri Lankans will head to the polls for the country's 8th presidential election.

This election comes at a critical juncture, as the nation seeks to solidify its economic recovery and ensure the continuation of an International Monetary Fund (IMF) bailout program.

The vote will determine whether the current president, Ranil Wickremesinghe, who took office under extraordinary circumstances, can maintain his position and guide the country through ongoing geopolitical tensions.

Background: Wickremesinghe's Rise to Power

Ranil Wickremesinghe, leader of the United National Party, assumed the presidency after Gotabaya Rajapaksa was ousted during the political upheaval of 2022. Rajapaksa's departure followed a severe economic crisis that led to widespread protests and instability. Wickremesinghe, now 75 years old, faces three main challengers in the upcoming election, with opposition leader Sajith Premadasa being the most prominent. In total, 39 candidates are vying for the presidency, each hoping to secure a five-year term.

The Economic Challenge

Wickremesinghe's tenure has been marked by the implementation of difficult economic reforms, primarily driven by commitments to the IMF. These reforms include tax increases and the introduction of new laws aimed at stabilizing the economy. While these measures have begun to yield positive results, such as a return to economic growth and lower inflation, they have also come at the cost of Wickremesinghe's popularity. The president's policies have created divisions among the population, with some questioning their long-term benefits.

Sri Lanka has made strides in economic recovery, achieving a primary surplus in the current account and increasing tax revenue. However, the nation still faces significant challenges, particularly in completing external debt restructuring with bilateral and private creditors. The country's history of policy inconsistency—often shifting from one government to another—remains a concern, especially as opposition parties express their intent to amend Wickremesinghe's agreements with the IMF.

Key Political Risks

As the election approaches, several political risks could impact Sri Lanka's future:

Economic Stability: While the IMF-led reforms have brought some stability, the nation has yet to fully secure external funding and investment. The potential for policy shifts, particularly if a new government takes power, could undermine the progress made so far.

 Public Sector Reform: Sri Lanka's economic model must evolve from one driven by public sector spending and protectionist trade policies to a private sector-led, export-oriented model. This shift is crucial for servicing external debt and ensuring sustainable economic growth. However, this transition requires robust legal frameworks to prevent political interference in economic decision-making.

Governance: Establishing good governance is essential for Sri Lanka's economic future. This includes safeguarding the independence of the Central Bank of Sri Lanka (CBSL) and implementing legal frameworks that promote sound fiscal policy. The Central Bank Act of 2023, which ensures the CBSL's independence, is a step in the right direction, but challenges remain, particularly in managing inflation and external shocks.

Tax Policy and Administration: Sri Lanka's tax system needs significant reform. The government must establish a coherent tax policy and improve tax administration to increase revenue. This includes passing a comprehensive Tax Law that standardizes tax rates and ensures transparency in tax exemptions.

Public Sector Spending: To reduce the role of the public sector and create space for private sector growth, Sri Lanka must enact a Public Finance Management Law and a Public Procurement Law that align with international best practices. Privatizing state-owned enterprises (SOEs) is also crucial for redirecting government spending towards social and economic development.

The Road Ahead

Sri Lanka's economic recovery is at a delicate stage. The nation cannot afford to revert to the economic models of the past, which relied on public sector spending and protectionism. Instead, it must embrace a new economic paradigm that prioritizes private sector growth, exports, and inclusivity.

Achieving this will require multi-year reforms and a commitment to good governance from all political parties. The legal frameworks needed to ensure policy stability and economic competitiveness must be established swiftly. Without these reforms, Sri Lanka risks another economic crisis and potential social unrest.

The upcoming presidential election will play a pivotal role in determining the country's future. The next president must navigate the complex economic and political landscape to ensure continued recovery and stability. For Sri Lanka, this is not a time for politics as usual, but a moment to set the foundation for a more prosperous and resilient future.