Political stability is a precondition for economic development. Doubts of the coalition of the two main parties continuing in office after the end of this year is a serious setback to the economy. The breakup of the unity government at the end of this year would result in considerable political instability that would be a [...]


Current political uncertainty serious setback to economic development


Political stability is a precondition for economic development. Doubts of the coalition of the two main parties continuing in office after the end of this year is a serious setback to the economy. The breakup of the unity government at the end of this year would result in considerable political instability that would be a setback to economic growth, even though the unity government’s economic performance has been modest and inadequate.

About 18 SLFP members in the government, who are opposed to the alliance with the UNP continuing, have threatened to leave the unity government and become independent MPs in Parliament. The President himself has not had many kind words to his UNP partner recently and is probably trying to appease the section within the SLFP who are opposed to continuing with the agreement. Although the final outcome of these political maneuvers are uncertain, there is little doubt that a period of political uncertainly has begun and policies would be dictated by political considerations rather than economic priorities.

One of the serious failures of the unity government was its inability to forge a common economic programme. There was no consensus even within the UNP itself that appeared to be in charge of running the economy. The differences between the UNP and elements of the S LFP were conspicuous. This was no surprise as there are fundamental differences in economic policies between the two parties. While the UNP was for market oriented outward looking economic policies and a reform agenda, the SLFP was for continuing statist and inward looking policies. They were opposed to the privatisation of large loss making state owned enterprises.

Economic Statement
Coalition governments are notorious for their inability to forge a common program. The unity government failed to agree on even a limited common economic policy framework.

A framework of an economic programme was enunciated by the Prime Minister, in his Economic Statement in November 2015 just before the unity government’s first budget. It was a carefully crafted comprehensive economic policy framework. Yet the Budget that followed had no relationship with the Prime Minister’s Economic Statement. Worse still it was a budget with internal inconsistencies and contradictions and provisions with respect to taxation in particular that could not be implemented.

Furthermore, it appeared that many of the economic policies pursued by the UNP did not have the approval of the President and SLFP ministers. This lack of the unity government arriving at a common economic program vitiated the implementation of economic policies and slowed down the country’s economic performance. Economic reforms that were essential to realise the full potential of the economy remained on the drawing boards.

Admittedly there were substantial gains by the unity government. Foremost was the reestablishment of law and order and the rule of law that are fundamental prerequisites for economic development.

Foreign relations with countries that are important for the country’s economy improved. The restoration of the GSP plus status and the resumption of fish exports to Europe are clear manifestations of this improvement. The surge in exports since March this year could have a substantial impact on the country’s balance of payments and economic growth especially in manufacturing. The boom in tourism is another achievement arising out of the improved conditions.
Despite these improvement the government failed to give clear-cut economic policies that would strengthen investor confidence. Higher investment, both domestic and foreign, requires these preconditions.

What next
Prime Minister Ranil Wickremesinghe has stressed the need to keep the unity government intact despite the likelihood of a section of the SLFP ruling coalition threatening to leave it. He has stressed that the unity government was formed to solve major national issues rather than for the benefit of the UNP or the SLFP. He is firmly of the view that the economic problems of the country, especially the debt problem and the establishment of a competitive market economy could be accomplished only with a unity government.

New coalition?
While it is not clear as to what sort of new combination would form the government, if the coalition agreement is abrogated in December, a period of political uncertainty is likely to ensue. There are however some constitutional provisions that may ensure political stability. The President’s tenure in office continues for the full term and parliament cannot be dissolved till four and a half years lapse. This implies that a government must be formed by the members of the present parliament for the next two years. This ensures the continuity of the President and parliament. It does not necessarily ensure stability, certainty and continuity of policies.

Given the current composition of parliament, it is difficult to conceive of a government that is not led by the UNP that has about 105 of the 225 members. On the other hand, the SLFP has only about 95 members and unlikely to get the support of nearly 15 members to form a government of its own. Besides this some of the SLFP members of the Joint Opposition who are opposed to President Sirisena are not likely to join him or for him to accept them.

What these constitutional and political factors imply is that if the agreement to abrogate the unity government takes place, then the only possibility is a government led by President Sirisena and a cabinet formed by the UNP with some other MPs supporting the government. The lesser parliamentary support means that the government would be weaker and in some instances unable to obtain adequate support for its measures. The change of the constitution would not be possible.

Concluding reflection
Even the likelihood of the breakup of the unity government at the end of this year has resulted in political instability that is a setback to economic growth. The government that continues during the remaining tenure of this parliament must forge a common economic policy program and give clear signals to investors of its economic policies. This is vital to move the economy into a higher trajectory of economic growth.

The current critical condition of the economy requires a stable polity and commitment to a program of economic reforms. The dissolution of the unity government could only weaken the capacity of a new government to pursue pragmatic economic policies. A viable political arrangement must be ironed out speedily to provide an environment conducive for economic development.

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