A Brief Colonial History Of Ceylon(SriLanka)
Sri Lanka: One Island Two Nations
A Brief Colonial History Of Ceylon(SriLanka)
Sri Lanka: One Island Two Nations
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Thiranjala Weerasinghe sj.- One Island Two Nations
?????????????????????????????????????????????????Friday, April 27, 2018
Fitch: Sri Lanka political unrest tests reform momentum
Recent
political developments in Sri Lanka have created some uncertainty over
reform momentum and fiscal consolidation, and prolonged upheaval could
undermine investor confidence ahead of large external debt maturities in
2019-22, says Fitch Ratings. That said, the unrest has had limited
economic impact so far, and Sri Lanka's 'B+' sovereign rating already
factors in a degree of political risk.
The ruling coalition suffered heavy losses in local elections in
February, pointing to waning support amid signs of friction within the
ruling coalition. The Prime Minister survived a vote of no confidence in
early April, before parliament was effectively suspended until May 8
upon the resignation of coalition ministers. The coalition leadership is
now discussing a cabinet reshuffle.
The government has shown strong commitment to the IMF programme that
began in June 2016. The IMF announced on April 20 it had reached staff
level agreement on the 4th review of the Extended Fund Facility (EFF),
subject to approval of the automatic fuel pricing mechanism. We noted an
improving policy framework that supported macroeconomic stability when
we affirmed Sri Lanka's rating with a Stable Outlook in February 2018.
Structural fiscal reforms, such as a VAT hike, have pushed up the
revenue-to-GDP ratio and narrowed the fiscal deficit in recent years. An
Inland Revenue Act in 2017 implemented from 1 April 2018 is likely to
increase revenue further.
This progress may still continue if recent political problems can be
resolved and the government keeps in place an economic team that
prioritises reform and stability. Some positive efforts have continued
even amid the upheaval. For example, in March 2018 an Active Liability
Management Act was passed and the Cabinet approved amendments to the
Monetary Law Act (MLA), which facilitate flexible inflation targeting.
The risk of political instability disrupting policy continuity might be
mitigated by the election schedule. The presidential election is not due
until end-2019, and parliamentary elections will follow. Early
elections would require approval from a two-thirds majority of
parliament and the President. The current administration is therefore
likely to remain in power for at least another 18 months.
However, policy implementation looks likely to become slower and more
challenging. Reform distractions and pressure for more populist policies
might also rise as Sri Lanka enters an election cycle. Fuel and
electricity price reforms to create automatic adjustment mechanisms were
an IMF structural benchmark to be completed by end-2016. Approval of
the fuel price reform is a requirement of the completion of the IMF's
next review, and further delay in implementation could raise risks to
the fiscal outlook.
Large upcoming debt maturities and low reserve coverage make Sri Lanka
vulnerable to shifts in global investor confidence, which could be
affected by an extended period of political unrest or signs of waning
commitment to the IMF programme.