Sri Lanka: Outlook for 2013-17 by Economist Intelligence Unit

economistPolitical stability
The president, Mahinda Rajapaksa of the Sri Lanka Freedom Party (SLFP), is idolised as the man who in May 2009 defeated the rebel Liberation Tigers of Tamil Eelam (LTTE, Tamil Tigers). He was re-elected for a second six-year term in January 2010. The ruling United People’s Freedom Alliance (UPFA, of which the SLFP is the main component) also won a landslide victory in the parliamentary poll in April 2010 and has performed strongly in elections for provincial councils in 2011-12. The government is not expected to face any significant parliamentary challenges during the remainder of its six-year term, given its exceptionally large majority. Mr Rajapaksa runs a highly personalised, populist administration. His position was strengthened in 2010 by a constitutional amendment that increased the president’s powers and reduced checks on his office while simultaneously removing the term limit for the presidency. In January 2013 Mr Rajapaksa ratified a vote by parliament to impeach the chief justice, Shirani Bandaranayake, who was removed from office under charges of misconduct and corruption—allegations that she denies. The impeachment of Ms Bandaranayake, once a close ally of Mr Rajapaksa, underscores a sharp rise in tensions between the executive and the judiciary, owing to the fact that the latter has issued rulings unfavourable to the government in recent months.

Although the LTTE has been defeated, splits in Sri Lankan society are unlikely to be healed in the forecast period. The UPFA has claimed that it will address Tamil grievances by devolving more power to the island’s provinces, but Mr Rajapaksa’s bias towards a centralised style of leadership make it doubtful that much progress will be made on this front.

In recent months there has been growing speculation that the administration will seek to abolish the system of provincial councils, established by the 13th amendment to the constitution. Although the government remains reticent about its plans in this regard, abolishing the provincial councils could deal a further blow to prospects for reconciliation between the island’s various ethnic groups, which has been predicated on the devolution of power.

The government has also been strongly criticised for its refusal to investigate human rights abuses committed towards the end of the civil war. Anti-Tamil discrimination will remain a major social problem.If the government is able to promote economic development in the east and north of the country, this could help to lessen resentment in the Tamil community. However, there are concerns about the role of the military in the economic and political life of Tamil-majority areas, particularly in the north.Although the LTTE is not expected to re-emerge as a major threat, the Tamil separatist movement has deep roots and isolated terrorist attacks could occur across the island.Critics of the government or the president in the media, civil society and abroad will continue to face an aggressive response by the authorities. Many journalists have been physically attacked, and media outlets that have criticised Mr Rajapaksa’s administration have been forced to close. But such intimidation has only partially muted media critics of government policy.

Election watch
Mr Rajapaksa was re-elected for a second term in January 2010 by a substantial margin, although he faced accusations from international observers and advocacy groups that he had used state resources to support his campaign. The UPFA also won a landslide victory in the parliamentary election in April 2010 and has dominated polls for provincial councils and local authorities in 2011-12.The next presidential contest is due in 2015. Having scrapped the limit on the number of presidential terms that one person can serve, Mr Rajapaksa is likely to be the UPFA’s candidate and will be strongly placed to win a third term.The next parliamentary election is due by 2016. Speculation abounds that the government is considering an early poll, perhaps in 2013, in an attempt to secure a renewed popular mandate.

International relations
Relations between the UPFA and Western governments will remain tense, given concerns about the deterioration in the island’s human rights environment during the final phase of the civil war—a process that has still not been fully reversed. The Economist Intelligence Unit nevertheless expects an improvement in Sri Lanka’s relations with Western countries in the latter half of the forecast period as respect for human rights on the island improves. Ties with India have come under strain in the past year following India’s vote at the UN Human Rights Council calling on Sri Lanka to investigate fully the death of Tamil civilians towards the end of the civil war. Disputes between the island and India’s southern state of Tamil Nadu over fishing, training of Sri Lankan military personnel in India and reports of mistreatment of Sri Lankans visiting the state have caused the relationship to fray further. But both India and China will remain important sources of funding for infrastructure projects and military assistance, although the terms may be less favourable than those applying to concessional loans from established aid donors.


Outlook for 2013-17

  • Mahinda Rajapaksa will remain president until the next election, due in 2015. He will be the favourite to win the contest, owing to forecast continued rapid economic growth in the next few years and the advantages of incumbency.
  • The United People’s Freedom Alliance (UPFA) government is not expected to face any significant parliamentary challenge during the remainder of its six-year term (which ends in 2016), given the unusually large size of its majority.
  • The Economist Intelligence Unit expects real GDP growth to slow to an average of 6.6% a year in the forecast period, from 7.5% in 2010-12, owing to weaker external demand.
  • The Sri Lanka rupee, which weakened by 13.4% against the US dollar in 2012, is expected to remain broadly stable in 2014-17, averaging SLRs129:US$1.
  • The annual average rate of consumer price inflation is forecast to slow to 6.5% in 2013, from 7.5% in 2012, as global oil prices fall and the local currency stabilises.
  • Sri Lanka’s merchandise trade deficit is forecast to widen steadily as import growth continues to outpace expansion in merchandise exports, growing to US$11.9bn in 2017, from an estimated US$7.4bn in 2012.
  • The current-account deficit is expected to shrink to the equivalent of 4.4% of GDP by 2014, from an estimated 6.9% in 2012. The goods trade deficit will be partially offset by a surplus on the services account from 2014 onwards.

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