One year in: Taking stock of the Govt.’s performance

By Dhananath Fernando

Originally appeared on the Morning

The President celebrates one year in office this week. Anniversaries are not just milestones for celebration but moments for reflection. After the first year, it is important to pause, assess performance, and take a look back at how the Government has fared.

We can measure it in two ways: against the promises made in the manifesto or against the real impact it has created. Manifestos, however, are written in a different time and often fail to account for the speed at which global dynamics shift.

What matters more is how a government adapts to unexpected events and whether it can remain steady in its commitments while being flexible in its tactics.

Navigating global shocks

For this Government, the most immediate test came in the form of external tariffs imposed by the United States. For an export-dependent country like Sri Lanka, this was no small matter. Yet, through negotiations and careful positioning, the Government managed to secure rates comparable to those faced by competitors such as Vietnam, Indonesia, Thailand, and Bangladesh.

This outcome was not perfect; Sri Lanka did not secure special exemptions or a breakthrough advantage, but in relative terms, it ensured that exporters were not left at a severe disadvantage. Given our vulnerability, parity itself can be considered a modest success.

Staying the course on economic anchors

The more significant achievement, however, has been in what the Government chose not to do. In Opposition, it was deeply critical of the International Monetary Fund (IMF) programme, debt restructuring, and even institutional independence. In office, it resisted the temptation to reopen these debates.

The IMF agreement is not a magic pill for growth, but it is an anchor of credibility. Bilateral and multilateral partners are only willing to extend support if Sri Lanka remains within the framework. Re-negotiating or exiting would have shattered fragile investor confidence. The decision to stay the course despite earlier political rhetoric is one of the Government’s strongest moves.

Equally important was continuity in the bureaucracy. Retaining senior officials like the Treasury Secretary and the Central Bank Governor, despite earlier criticism, signalled stability. The Central Bank’s independence — once challenged in court by the same political actors — was not overturned. In a country where ad hoc shifts in policy have been the norm, these decisions represent a break with the past.

Policy consistency and digitisation

The Government has also placed a clear emphasis on digitisation. This is not glamorous politics, but it is critical for modernising the State.

Investment in digital platforms, citizen-facing services, and e-governance can reduce corruption, cut red tape, and improve trust. Execution here will matter more than announcements, but the focus is right.

Where it fell short

Yet, the record is mixed. The first 100 days, a period traditionally reserved for hard reforms, lacked decisive moves on growth. This was a lost window. Early political capital is invaluable, and reforms delayed are often reforms denied.

On electricity, the amendments pushed through were poorly thought out. While the sector desperately needs investment to modernise the grid, the structure presented remains too complicated to attract private capital. This has left both investors and consumers uncertain. The result: more delay in a sector central to growth.

The casino regulation bill was another missed opportunity. Instead of a carefully designed framework to maximise foreign exchange inflows and create predictable tax revenues, the rushed bill left loopholes and generated criticism.

Properly regulated gaming could have been a valuable source of revenue, especially given the need for fresh dollar inflows, but haste undermined credibility.

A mixed scorecard

Looking at the first year as a whole, the Government can claim several wins:

• Managing global tariff shocks without falling behind competitors

• Staying in the IMF programme and pushing debt restructuring forward

• Maintaining institutional continuity and not reversing Central Bank independence

• Prioritising digitisation as a long-term reform

At the same time, its shortcomings are notable:

• Failing to push through bold, growth-driven reforms in its first 100 days

• Weak design in critical reforms like electricity

• A poorly structured casino bill that squandered an opportunity for new revenue

The road ahead

The next stage will be harder. Stabilisation was the first priority; growth must now take centre stage. Without growth, fiscal adjustment will remain politically painful, and social patience will wear thin. The Government must focus on reforms that can unleash private investment by simplifying tariffs, unlocking land titles, and modernising State enterprises.

Above all, it must resist the temptation of short-term populism. Stability has been bought at a cost, but it will only pay off if the Government uses this breathing space to create conditions for long-term expansion.

Anniversaries are for both reflection and recommitment. As the Government marks one year, the people expect not just steadiness in storms but boldness in calm. If the first year was about survival, the second must be about growth.

A new era or more turbulence?

By Dhananath Fernando

Originally appeared on the Morning

• The challenges facing Sri Lanka’s next president

The Presidential Election has been announced. Ideally, by 22 September, there will be a new president with a new mandate from the people.

Sustaining power will be more difficult than winning the election. Generally, from the very first day after assuming office, things start to fall apart. This will be the first election after the ‘Aragalaya,’ and we do not know the ground reality.

The last power transition wasn’t smooth. While there was a democratic element in appointing the eighth President after the resignation of the former, that episode had many dark elements, including a massive economic contraction and impact on human lives.

Focus on economics and corruption

Previous elections had a national element, but this time the focus is completely on economics and corruption. The good news is that the path forward is well defined, including macro targets. The International Monetary Fund (IMF) Governance Diagnostic has provided the main reforms needed to curtail corruption, with timelines and responsible institutions. Most of these are non-controversial.

This time, all candidates will also have to declare their assets electronically. We, as the people, should demand that the Commission to Investigate Allegations of Bribery or Corruption (CIABOC) enforces this.

The new president must deliver on anti-corruption promises because the demands of the ‘Aragalaya’ have not been met yet. However, some promises, like recovering assets overseas, are not easy to execute. Therefore, delivering on the anti-corruption sentiment is challenging.

Delivering on the economic front is equally tough. After debt restructuring, our interest rates will likely remain high. When interest rates are high, the cost of capital is higher, slowing down investment.

For instance, buying a computer to automate manual work becomes difficult when money is hard to source due to high interest rates. As a result, our economy will not grow. If the economy is slow to grow, it invites another crisis. Simply put, if the economy doesn’t grow, our debt will not be sustainable.

In other words, if the economy is slow to grow, it indicates that we are heading towards another debt crisis. The next leader must ensure both growth and stability.

The second piece of good news is that we at least have an idea of what targets we need to achieve on the economic front. Our debt-to-GDP ratio must gradually come down to 95% and our revenue must increase by improving our tax net.

Many promises about increasing Government sector salaries and public sector expenditure are good, but will be difficult to keep.

Limited options

In this context, there are two limited options available to increase money and productivity.

The first is improving productivity in what we already do. Simply working harder and putting in more effort can help. For example, reducing the number of holidays by 10% should increase the economy’s momentum because people will work more. But this race cannot be won solely by working harder. We must also look into channels for improving productivity without capital investments.

One such area is opening up business ventures that change the business format. For example, app-based taxi companies have significantly improved the productivity of both passengers and drivers by connecting potential riders with drivers. Companies like Booking.com connect tourists looking for lodging with small-scale lodging options.

Changing the business model has increased income for many people, reduced expenditure for many, and decreased waiting times, increasing overall productivity. The new leader must leverage this productivity lever.

The second option is to reform State-Owned Enterprises (SOEs) to attract capital. Allowing SOEs to undergo privatisation and Public-Private Partnerships (PPPs) can attract capital through investments. Additionally, rather than incurring losses, private entities can generate revenue for the Government through taxes and improve productivity.

The third option is to release land to improve productivity and circulate capital. Providing land ownership to people allows them to use it as security to unleash capital from the banking system, improving productivity.

Beyond these three options, any president will have limited choices. Relying on geopolitical powers in a highly volatile geopolitical environment may also be unfeasible.

Therefore, the challenge for the new president extends beyond getting elected. The real challenge is navigating the period after the election, which will undoubtedly be tougher than getting elected.

Delaying elections threatens political and economic stability

By Dhananath Fernando

Originally appeared on the Morning

Whenever there is an election, there is always a conversation about delaying it. Already, Provincial Council Elections and Local Government Elections have been delayed. This was the case in 2004/2005 and again in 2019.

One rationale is that, having just achieved stability after a massive economic crisis, we need more time to complete some structural reforms and ensure political stability. On the flip side, how can we execute any reform without the mandate of the people? Operating without the people’s mandate means political stability is the first thing to go out the window.

After the resignation of the former President, the process of appointing a new President followed a democratic process. While it may not have been perfect, there was a democratic element involved. Political parties with a mandate from the people were able to contest, and the candidate who could command a majority of confidence through votes was given the responsibility to lead the country for the remaining term of the previous President.

Despite its flaws, this democratic element brought political stability, which led to economic stability. With the President’s support from Parliament, it was possible to enter into an agreement with the International Monetary Fund (IMF) and continue discussions with external and internal creditors for debt restructuring. The political stability that came through the democratic element in the power transition process made it possible to achieve some level of economic stability.

Uncertainty and economic growth

However, the same democratic process has clear guidelines on the expiry time of the mandate. If we do not follow this process, the system that brought stability will push us towards instability again.

Delaying or attempting to delay elections often prompts political parties and their supporters to demand elections, creating instability as people seek to test the mandate of the public. Delaying an election in the hope of completing unfinished reforms rarely works as planned.

Moreover, postponing elections increases uncertainty. Even holding an election carries some uncertainty, but postponing it intensifies this uncertainty. The biggest enemy of any economic development is uncertainty.

After debt restructuring, the only way out for the country is economic growth. According to agreements with bondholders, we start repaying our interest from September onwards. A year of uncertainty will hinder even the small growth potential we have.

For economic growth, we need investments, and in an uncertain economic environment, attracting investments will be difficult. Falling behind our growth targets due to political uncertainty will challenge our debt repayments and credit rating updates.

International support may not be as easy to secure if the legitimacy of the Government is questioned over a delayed national election. It is true that elections themselves have an element of uncertainty. Especially post-Presidential Elections, if Parliamentary Elections result in fragmented party compositions, we risk returning to a scenario similar to President Chandrika Bandaranaike Kumaratunga’s era, with a Coalition Government barely holding a majority.

Passing bills during a time when growth and structural reforms are needed could face resistance and pushback, leading to maintaining the status quo rather than shifting gears for growth and development.

Having a majority or even two-thirds power does not guarantee that all decisions will be right or fast. As we witnessed, a two-thirds majority Government was short-lived due to misguided economic policies. However, a diluted majority will also bring instability and frequent power changes, causing things to go back and forth.

The solution: A common reform programme

If we think about the country and the people, the only solution is a common minimum reform programme where parties agree on a baseline level of reforms. This ensures that regardless of who comes to power, progress continues. The common minimum programme can start with implementing the IMF Governance Diagnostic, which has recommended significant structural reforms for fiscal, monetary, anti-corruption, and State-Owned Enterprise (SOE) sectors.

If we can at least implement the IMF Governance Diagnostic Report as a common minimum programme, even in case of a drift, it will be slow. Delaying elections, however, will accelerate the drift and slow down existing reforms and growth.

The real challenge will be for whoever comes to power next. If the next government cannot drive economic growth through improving productivity, investment, and efficiency, another collapse is inevitable. A common agreement on reforms is required because the common people care less about who rules the country and more about how their future and standard of living will improve.