In around two weeks, Sri Lanka will elect a President and a government of his choice will take over the troubled island's journey towards recovery and a better style of governance. We hope. 

Irrespective of who takes the helm during the last week of this month, the best case scenario for Sri Lankans is that the new government or an interim one until the General Elections are held, will continue with current reforms agenda which is aimed at improving the islands economy, and that all political parties band together to supporting such efforts, especially on ensuring transparency, accountability and the rule of law. 

There is also a risk of continued political instability if key parties and supporters do not accept the outcome of the Election in the spirit of democracy. Let’s not fool ourselves, this time there is a sizable voter base that expresses their anger and frustration of the long-standing governance failures through their ballot. As such, keeping political stability would also be a tight rope walk. Sri Lanka can ill afford to be in prolonged state of political instability. 

Irrespective of which candidate wins, the challenges before him and a new government remain daunting, and will require significant effort and statesmanship to navigate. 

From early in the crisis, it was clear that Sri Lanka will face a barrage of crises which are interconnected.  Firstly, the challenges surrounding Sri Lanka’s debt crisis remain partially resolved, and if the new President and government decide to continue with the debt restructuring which has been agreed thus far, there is more to be done, and soon. 

When Sri Lanka’s forex crisis began, it was clear that a balance of payment crisis would follow. This occurs due to excessive borrowing from the CBSL (money printing) and leads to inflation. In countries like Sri Lanka, where the local currency is not a reserve currency and the economy relies heavily on imports, printing too much money increases the demand for goods and services – many of which are imported. If exports, remittances, and foreign investments are unable to keep up with this increased demand for imports, the island runs out of foreign exchange reserves, causing the currency to depreciate. Further, when foreign currency reserves are depleted, the country struggles to meet its obligations to creditors. With Sri Lanka yet to finalise their commercial debt, it remains uncertain when Sri Lanka will be given a better credit rating, enabling the island to borrow money from the international arena again? 

And with Sri Lanka’s state revenue target still not met, how will a new president and Co. deliver on the wish list of relief they have promised as candidates?  How will the Presidency go about finding funds? The Government can ill afford to borrow locally, that is a source they have exhausted already. If local banks are pushed to provide significant loans to the Government and the Government is unable to pay back on time, a banking crisis can be triggered. Sri Lanka narrowly avoided this in 2022 and early 2023. The continuing Humanitarian crisis where over 30% of the population being below the poverty line will have to be addressed carefully, with tact and not emotions. The ongoing cost-of-living crisis which disproportionately affects those near or below the poverty line will take both short-term and long-term measures to address. 

Any candidate that wins will have to face tough fiscal limitations and may have to reverse some of the promised relief to maintain fiscal discipline. This would be a deeply unpopular move and may create more instability if not handled properly. The situation may get worse, like during the Yahapalanaya era, if the President is from one party and the Prime Minister/Cabinet is formed from another party, post-election. 

Therefore, whoever wins the Presidential Election, and the General Elections which will surely follow, will have to put some of their differences aside, and forge some degree of bipartisan support if Sri Lanka is to steer clear of trouble and head to a safe harbour situation. For such, dialogue, policy consistency and stakeholder management will be crucial. If not, Sri Lanka may find itself worse off.