Newsmakers | Sri Lanka

Sri Lanka’s recently elected president Maithripala Sirisena took office on January 9, only hours after former president and fellow Sri Lanka Freedom Party (SLFP) member Mahinda Rajapaksa conceded defeat in a closely contested election. Sirisena drew support from diverse interest groups to unseat Rajapaksa, who had served in the position for almost a decade.

Following the election, Sirisena reinstated the office of prime minister, called for parliamentary elections in April and appointed a short-term, multiparty cabinet to fight corruption and push through constitutional changes to limit executive powers. “The first 100 days of Sirisena’s manifesto are devoted to constitutional reforms,” says Dr Dushni Weerakoon, deputy director at the Colombo-based Institute of Policy Studies of Sri Lanka. “We are unlikely to see any economic pronouncements, apart from the promised salary hikes and price reductions.”

Sri Lanka’s economy has outperformed most of its neighbors in recent years, expanding by an average rate of about 7.5% from 2010 to 2013. Much of that growth stems from infrastructure construction, however, which is often financed through sovereign bonds, international loans and foreign investment.

“The crux of the problem is that we have relied heavily on costly external debt for infrastructure spending,” says Weerakoon. “It has pushed up GDP growth, but at the same time our export-to-GDP ratio has declined sharply, down to 16% of GDP. ”

To address these issues, Sirisena’s government must work to reorient the economy away from infrastructure projects toward manufacturing and service-sector growth. This process may require unpopular moves, such as restructuring inefficient state-owned enterprises, eliminating labor market restrictions and reforming the education sector.

Such changes could delineate the key differences between Sirisena’s more populist leaning SLFP party, and prime minister Ranil Wickremesinghe’s more market-friendly United Nationalist Party (UNP).