Event

Since the 8 January elections, Mr Maithripala Sirisena is the island’s new president after having won 51% of the vote over Mr Rajapaksa (47.5%), the incumbent president who put an end to the civil war in 2009.
Importantly, Rajapaksa accepted his defeat which augurs a peaceful transition of power. Ranil Wickremasinghe (United National Party - UNP) is the new PM until the April legislative elections.

Impact on country risk

This result is stunning given the absence of any credible contender to Rajapaksa’s personalised rule until  just a few months ago. What’s more, over the past years, the country had recorded robust economic performances notably boosted by infrastructure construction and tourism expansion. For sure, the   population (but also members of the former ruling party) had become increasingly critical about Rajapaksa’s regime and family dynasty for being authoritarian, corrupt and influential in justice. The high cost of living  was frequently blamed as well. A major opposition came from Tamil and Muslim minorities as they felt left aside by his pro-Sinhalese policy and the absence of ethnic reconciliation. In fact, Rajapaksa, who had been in power since 2005, showed that he was aware of a rising discontent by seeking a third term two years in advance, but seemed to have gone too far. The election of Mr Sirisena, long an ally of and Minister under Rajapaksa’s rule, is a real victory for democracy. In the coming months, three policy objectives will receive particular attention. Firstly, a constitutional reform is to remove the presidency and enhance the parliamentary system with the purpose of burying any authoritarian temptation and restoring democratic rights that were curtailed by Rajapaksa. Secondly, Sirisena is expected to improve diplomatic ties with the international community after years of tensions around alleged war crimes and the refusal to allow a UN probe. This should go together with heightened trade and investment flows. Thirdly, he should aim to make political concessions and eventually grant more rights to minorities, especially Tamils, to reduce ethnic tensions while not angering the Sinhalese majority. However, devolution is likely to be a very divisive issue. All in all, Mr Sirisena’s election is a positive milestone in Sri Lanka’s recent history and improves the political risk outlook, at least potentially. His mandate is indeed expected to be very challenging, above all because despite many promises made, the April legislative elections are not likely to give his party a majority but rather confirm the currently UNP-led disparate coalition. Hence disagreements are expected on future policies thereby making a 2/3 majority difficult to reach for endorsing constitutional amendments. Therefore, the gain in democracy could be offset by more instability.

Analyst: Raphaël Cecchi, r.cecchi@credendogroup.com