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Sri Lanka: D-day for Presidential vote; Policy direction remains key priority

  • Parliament vote takes place today; no clear winner ahead of polls

  • All-party Government likely with a SJB/SLFP win

  • Cabinet appointees and policy direction key outcomes from today’s election

Asia Securities
20 July 2022
Published byAsia Securities

Parliament vote takes place today; no clear winner ahead of polls

The much-awaited Parliament vote to fill the Presidential post takes place today. While three candidates are in the race to Presidency, it is widely expected that either acting President Ranil Wickramasinghe or veteran politician MP Dullas Alahapperuma will be the front runners for the post of President for the remainder of the term, until 2024/2025.

With the core SLPP group – which retains the majority in parliament – backing Mr. Wickramasinghe, it was widely expected that he will continue as President. However, a last-minute coalition between the SJB led Premedasa (which retains about a quarter of seats in Parliament), TNA, SLFP, and several independent members of the SLPP, Dullas Alahapperuma now looks to put up a meaningful fight for Presidency.

While our channel checks indicate that the SLFP/SJB have the numbers going into the vote today given that most of the independent parties have also pledged support, we note that for a victory, at least 15 members from the SLPP also would need to either abstain from voting or vote against Wickramasinghe. With a secret ballot expected later today, a clear winner looks uncertain at the moment.

Ahead of the vote, the Wickramasinghe camp has indicated that they have secured 150-170 votes, while the SJB/SLFP camp have also come out stating they are certain of over 140 of the 225 votes.

All-party Government likely with a SJB/SLFP win

If elected, the SJB/SLFP coalition has pledged to create an all-party Government for the remainder of the term. This is likely to be accepted by the majority of Sri Lankans and International community at this point and could lead to improved political stability.

We note that the downside to a coalition government are 1) delays to decision making due to varying definition of key priorities, 2) lack of willingness to take the politically unpopular reforms which are a key priority for IMF discussions and debt restructuring.

With a requirement of approx. USD 5.0bn for the next 6 months to bridge the shortage of essentials, we see a continued impact on the economy despite a potential all-party government

Cabinet appointees and policy direction key outcomes from today’s election

While appointing a new President is a key factor for Sri Lanka at this point, the appointment of key cabinet ministers is a crucial step towards clear and correct policy measures.

It is widely expected that both parties will likely continue towards fiscal consolidation measures and work towards fast tracking an IMF Staff Level Agreement. We note that any clashes in policy direction within coalition parties will lead to delays in the much-needed policy correction measures. The IMF has also indicated that it “is monitoring Political and economic developments in Sri Lanka closely” signaling the need for clearer political certainty for the finalisation of a funding agreement.

We also note that any further policy uncertainty will lead to prolonged delays in debt restructuring talks, with creditors not in favor of any further instability in policy making. However, on the flipside, a strong government which shows its willingness to continue with the fiscal reforms will lead to a more positive outlook for both restructuring and refinancing discussions.

At this point, we think the potential to finalise a SLA by end August is still likely, especially with a continued policy stance towards fiscal consolidation efforts in the event of a Wickramasinghe win. For this, who takes key positions like the Finance portfolio is a crucial factor. We continue to factor in an interim budget in August.