Debt trap, ethnic divide await Sri Lanka's new president Gotabaya Rajapaksa

With Gotabaya Rajapaksa of the Sri Lanka Podujana Peramuna (SLPP) winning the election for the presidentship of our southern island neighbour decisively (in the first round of voting itself in a single preferential vote system), the world is agog about what this means for the country’s future.

The biggest concern is the economy. After the Easter bombings by radical Islamists in April killed more than 200 people and injured over 400, the prediction of every multilateral financial agency was that the country’s GDP growth would slip below the International Monetary Fund's (IMF’s) 2019 forecast of 3.5 per cent and the Asian Development Bank's (ADB's ) prediction of 3.6 per cent. After the blasts, the minister of state for finance, Eran Wickramaratne, said GDP growth would be around 3 per cent. Polls in May showed it could fall to 2.5 per cent. It was a crisis for the country and the central bank cut rates twice between May and November to shore up the economy.

This was not the only problem. The general impression is that degree of indebtedness of Sri Lanka to China because of loans taken as part of Chinese Belt and Road Initiative (BRI) investments in infrastructure development is extensive — from 2008 to 2012, approximately 60 per cent of foreign borrowings were from China. But before that, Sri Lanka had already walked into a debt trap of commercial borrowings. 

The largest portion of the country’s foreign debt is international sovereign bonds —  39 per cent of the total foreign debt as of 2017. Besides loans have been obtained from international capital markets since 2007, and such bonds have resulted in soaring external debt servicing that does not enjoy the luxury of deferred or relaxed payment schedules.

It didn’t help that the country’s political leadership was at sixes and sevens, with outgoing President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe fighting each other at every step, and this led a virtual standstill in the bureaucracy.

Now, a similar policy paralysis can be expected for the next 12 months until the parliamentary polls are held in November 2020. In Parliament, it is the United National Party (UNP), led by Ranil Wickremesinghe, that has a majority. In the Sri Lankan system, while the president has the right to appoint and dismiss ministers and control over the armed forces and national security, the prime minister, through a recent constitutional amendment, is empowered to take decisions on the economy and allied matters. 

Other challenges persist, too. The election results show that while Rajapaksa had a landslide victory in the Sinhalese-dominated southern districts (in Gampaha and Galle, for instance, he got upwards of 60 per cent of the vote), opposition leader Sajith Premadasa won a majority of votes in the Tamil and Muslim-dominated northern and eastern districts like Jaffna and Batticaloa. This is a searing reminder of the deep ethnic and racial divide between the majority Sinhalese and the minority Tamil/Muslim communities.

From India’s point of view, the new president’s foreign policy moves will be crucial. “Gota will play the China card, but Beijing is now less inclined to repeat the large financial investments it did five or 10 years ago because of growing domestic opposition and international scrutiny,” said Constantino Xavier, a foreign policy fellow at Brookings India was quoted as saying. But one thing is clear: National security and domestic law and order will be the new president’s foremost priority. In the current circumstances, will Sinhala-Buddhist organisations like the Bodu Bala Sena which were set up with moral and material help from the Rajapaksa family, especially when it was in the Opposition, now become stronger? Or will they recede to the background? This holds the key to stability on the island.

This time, unlike the previous presidential election when India’s opposition to the Rajapaksas was the world’s worst kept secret, the country has stayed scrupulously out of the power game, opting to be an observer rather than a commentator. In the process, it can count many in both camps as its friends. In the end, what happens in the parliamentary election in 2020 will be crucial: Whether the Rajapaksa family with Mahinda Rajapaksa as the SLPP’s prime ministerial candidate will dominate Sri Lanka’s political landscape?