Sri Lanka’s leftist president takes office as IMF worries grow
Anura Kumara Dissanayake vows to reopen negotiations with the global financial agency over its US$3b bailout plan
SRI Lanka’s new leftist president was sworn into office on Monday (Sep 23) after a sweeping election win the day before, ousting the country’s elites who voters blamed for bankrupting the nation and inflicting economic pain with harsh austerity measures linked to an International Monetary Fund (IMF) bailout.
Anura Kumara Dissanayake – popularly known as AKD – took his oath of office in Colombo, vowing to work with others to achieve his goals of clean governance.
“We do not believe that this deep crisis can be overcome by a government, a party or an individual,” he said. “I am not a magician, I am an ordinary citizen born in this country. My main task is to absorb skills, absorb knowledge, and take the best decisions to guide the country.”
Dissanayake, 55, defeated opposition leader Sajith Premadasa after two rounds of counting in the country’s first-ever runoff, sweeping Ranil Wickremesinghe, the previous president, out of power in the first round.
The new president has vowed to reopen negotiations with the IMF over its US$3 billion bailout, which came with spending cuts and tax hikes that proved deeply unpopular with voters. Some members of his National People’s Power coalition also oppose debt restructuring terms agreed with the nation’s creditors.
Reviewing the debt plan or reopening IMF talks risks delaying the disbursement of fresh loans from the Washington-based lender, which has said it will hold discussions with the new administration once it’s in place.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Under the current bailout programme, Sri Lanka will need to meet certain economic targets before the IMF approves the next tranche of funding, estimated at about US$350 million.
Sri Lanka’s dollar bonds and stocks slid on Monday as investors worried over the IMF and debt deals. Bonds maturing in March 2029 declined 3.1 cents, the biggest drop in about two years, to 50.2 cents on the dollar. The S&P Sri Lanka 20 Index of blue-chip stocks slid 2 per cent in early trading.
“Sri Lanka has voted for a regime change,” said Avanti Save, head of Asia credit research and strategy at Barclays Bank.
Bond trading will be determined by “developments and comments suggesting commitment to the IMF programme and macro-linked bond proposal, government appointments, and ability to execute economic policy”, she added.
The victory for Dissanayake, who secured only 3 per cent of the vote when he last ran for president in 2019, shows the depth of frustration with a political elite that triggered the government’s first default in its history. The economic crisis culminated in street protests that ousted former leader Gotabaya Rajapaksa.
Under Wickremesinghe, who was appointed by parliament after the uprising, inflation slowed to low single-digits from nearly 70 per cent, borrowing costs fell, debt was restructured and the economy also posted faster-than-expected growth. But the island nation’s 22 million people have felt the pain with higher taxes and electricity prices.
“Cost of living and austerity measures were the heart of these elections” compared with previous votes, when constitutional reforms and minority rights were in focus, Bhavani Fonseka, senior researcher and lawyer at the Colombo-based Centre for Policy Alternatives, said ahead of the result.
Dissanayake now faces the challenge of following through on his economic pledges while maintaining stability in the economy and keeping IMF bailout funds flowing.
Although he has not spelled out his plan on the IMF deal in detail, his backers have said he plans to seek modifications without throwing out existing terms altogether.
“We are staying with the programme but will look for modifications,” Rizvie Salih, an executive committee member of Dissanayake’s NPP coalition, said on Saturday. “Even the IMF has said they are open to new ideas, proposals.”
The incoming president pledged other economic measures on the campaign trail, including an increase in tax exemptions and more “equitable” tax rates and brackets.
He’s seeking more oversight on government spending and cleaner governance. Dissanayake has also said he may cancel a proposed wind power project by India’s Adani Group amid claims of a lack of transparency and uncompetitive pricing.
On foreign policy, Dissanayake faces the challenge of juggling the competing interests of China and India, strategic rivals who’ve been major investors.
Some analysts have said Dissanayake may be more likely to favour China given his party’s Marxist roots, although he also paid a visit to New Delhi at the invitation of India’s government earlier this year.
Dissanayake’s backers have also called for greater scrutiny of investment deals with China and other nations to avoid future debt traps. He’s previously questioned the government’s trade agreement with China, saying it would undermine Sri Lankan businesses.
Both the US and India congratulated Dissanayake and said they’ll work with him to bolster ties.
The US is committed to supporting Sri Lanka as it builds a stable society, State Department Spokesman Matthew Miller said in a statement on Sunday. Indian Prime Minister Narendra Modi said Sri Lanka held a “special place” in India’s neighbourhood-first policy.
Dissanayake replied to Modi’s comments in an X post, saying he shared India’s commitment in strengthening ties.
Dissanayake got his political start as a student leader in his party, the Janatha Vimukthi Peramuna. The party was once known for violent Marxist uprisings in the 1970s and 1980s, but has since renounced violence, with Dissanayake positioning himself as a center-left figure. He became the party’s head in 2014 and has included civil society leaders and academics in the group to appeal to a broader section of the country.
The party has shifted away from its anti-capitalist roots and briefly joined coalition governments. Still, the JVP leadership is untested as administrators, and the coalition that it leads has only three members in the 225-seat parliament. BLOOMBERG
Share with us your feedback on BT's products and services
