An ex-Marxist is taking risks to reshape Sri Lanka

Seven months into Anura Dissanayake' sterm, the former radical has realised that keeping his country from one more crisis requires him to break promises and lose friends.

By Mihir Sharma

Last week, regulators in cash-strapped Sri Lanka raised power prices by 15 per cent. President Anura Dissanayake, who during his successful election campaign last year promised to lower the cost of electricity by a third, had to explain his U-turn. The treasury could no longer afford to subsidise power, he said.

Seven months into his term, the former radical has realised that keeping his country from one more crisis requires him to break promises and lose friends.

The International Monetary Fund, which lent Sri Lanka $2.9 billion in 2022 so it could keep the lights on, serves Dissanayake as both scapegoat and ally. Domestic criticism of tough reforms like the power-price hike can be deflected, and blamed on the IMF’s requirements and its disrespect for Sri Lankan sovereignty. But the president will also gratefully accept praise from the fund. Its deputy managing director, Gita Gopinath, visited the island this week to speak about the “remarkable progress that has been achieved in a very short time.”

Neither Dissanayake nor his party can be connected to the fiscal and economic crises. His political movement – which has a history of far-left economic policy and far-right ethnic nationalism – was frozen out for decades. He broke that cordon sanitaire last year by dissociating himself from the entrenched political elite that had led the island to disaster, and by promising to renegotiate the deal they had made with foreign debtors.

In office, the insurgent outsider instead is behaving much like his blue-blooded predecessor, Ranil Wickremesinghe: responsibly. As a consequence, Sri Lanka has kept economic growth up around 5 per cent. And, as Gopinath pointed out, tax revenues as a share of GDP are higher by more than two-thirds.

But maintaining the recovery momentum going won’t be easy. Sri Lanka needs to earn more dollars, both to buy imported fuel and to pay down debt. However, a quarter of its exports go to the US. President Donald Trump’s original set of “reciprocal” tariffs threatened to impose a 44 per cent rate on those goods. That would make Dissanayake’s job much tougher, if not impossible.

It will also be challenging to shift those exports elsewhere. True, Sri Lankan goods have duty-free access to European markets under the EU’s Generalised Scheme of Preferences. But Brussels bureaucrats review that privilege regularly; it’s linked to economic need and social progress, including on human rights. If Sri Lanka loses zero-tariff access to Europe, then it will miss out on more than a billion dollars a year. And so Dissanayake has been forced to promise Europe that he will repeal some of his country’s most draconian anti-terrorism legislation.

Social and judicial reform will put the president on a collision course with hardliners in this divided, militarised society. During his campaign, he went out of his way to woo veterans of Sri Lanka’s bloody civil war, and promised to shield them from war crimes prosecutions. But he has since vowed to downsize the military, and accused it of connections to the criminal underworld. Opposition leaders have accused him of doing too little to protect “war heroes” from foreign actions, such as Britain’s recent sanctions of former commanders of the army and navy.

But Dissanayake remains confident enough in his popularity to take a few risks, whether with the economy or the military. He raised eyebrows when, at a civil war commemoration, he used the word “soldiers” to describe veterans and not “war heroes,” as is traditional in Colombo. His speech on that occasion was remarkable, especially for a country that, to outside eyes, appears consumed by its victory against separatism and terrorism. It was an attack on armed conflict and those who profit from it, those who would, he said, “turn war into a great river of blood to protect their power.”

The ex-Marxist, ex-insurgent and ex-ethnic supremacist must somehow keep governing as a forward-looking, pragmatic moderate, and escape what Gopinath called “reform fatigue.” Sri Lanka has already been bailed out 16 times by the IMF, and Dissanayake has promised that this 17th package will be the last. But he will also need to keep the US and Europe open to his goods, assuage domestic critics, and maintain cordial relations with the military while cutting it down to size. If he fails in even one of these tasks, Sri Lanka will be faced with yet another crisis.