Rising violent clashes between Buddhists and Muslims in the Kandy area (central Sri Lanka) have led the government to declare a state of emergency on 6 March for the next ten days. Security forces are required to prevent violence from spreading outside the emergency area. This is the first state of emergency since the aftermath of the end of the civil war in 2009.

Impact on country risk

Sri Lanka faces sporadic ethnic and religious tensions. Historically, tensions have been primarily high between the large Buddhist majority and the Tamil minority (living in the north/north-east of the island) until the end of the civil war in 2009. Since then, the security risk has significantly decreased. However, slow progress on ethnic reconciliation (due to pressure from Sinhalese nationalists) and devolving some political autonomy to Tamils maintain the risk of renewed tensions in the medium to long term. Religious tensions with Muslims – 10% of the population – are more recent as anti-Muslim unrest occurred in 2014 and last year. Such tensions have particularly increased with the rise of Buddhist radicalism, somewhat echoing the Buddhist stance witnessed in Myanmar against the Rohingya minority. Despite the risk of mounting religious tensions, the overall political violence risk – currently in category 3/7 for investments – is not expected to reach worrying levels as to threaten domestic stability.

In fact, the latest state of emergency declaration is also politically motivated as it allows the government to show its capacity to maintain order and security. That matters after the ruling coalition suffered a heavy defeat at the latest local elections in February. Main opposition party SLPP, led by populist and former president Rajapakse, won 2/3 of council seats. Government unpopularity is due to – among other things – slow policy-making, plans to judge perpetrators of alleged war crimes in the last months of the civil war and to grant political rights to communal minorities. The two latter are particularly criticised by Rajapakse supporters, who perceive the plans as anti-Sinhalese. Therefore, Mr Rajapakse is likely to increasingly use a nationalist, pro-Sinhalese and Buddhist rhetoric until the next general elections scheduled in February 2020, which could fuel more communal violence in the coming years. The fragile government coalition has made limited progress in policies due to frequent infighting and diverging policy views. It has to be reminded that the alliance between former rival parties was formed after the 2015 elections essentially to end to the long and increasingly authoritarian reign of Mr Rajapakse. Since then, President Sirisena’s (SLFP) and PM Wickremesinghe’s (UNP) camps have had strained relations which have threatened the government’s existence several times. Until now, the desire to keep Mr Rajapakse out of power has turned out to be stronger than the desire to end the shaky coalition. It could remain so until the 2020 elections given Mr Rajapakse’s rising popularity and the ruling coalition’s strong majority in Parliament. Although it would support political stability, economic policies and political reforms – other than the 2015 constitutional amendment cutting presidential powers – will continue to be hindered by a fragmented coalition, thereby contributing to Credendo maintaining the MLT political risk unchanged in category 5/7.

Analyst: Raphaël Cecchi – r.cecchi@credendo.com