Now that Gotabaya Rajapaksa has been sworn in as Sri Lanka‘s new president after winning a fiercely contested election, his country will not only be looking to the former defence minister to safeguard national security but also to boost its struggling economy.
Sri Lanka is in its deepest economic slump in more than 15 years, dragged down by its tourism sector after the Easter bombings on April 21 killed more than 250 people.
Rajapaksa, 70, and his brothers, who are expected to be given key cabinet positions, are seen as being closer to China than his opponent, Sajith Premadasa, from the ruling United National Party (UNP).
China has invested billions of dollars building ports, expressways and power stations in the strategic Indian Ocean island nation.
But these projects have been controversial, leading to high debts, a quarter of which are owed to China.
The country faces a crushing $34.4bn in foreign debt, amounting to 45 percent of its gross domestic product (GDP), the total of all finished goods and services produced by an economy.
This has raised fears of a loss of sovereignty after Sri Lanka was forced to hand over control of the giant Hambantota Port in a debt-for-equity swap with Beijing in 2017.
“The economy has a huge debt burden. This is something that the current government has inherited from Gotabaya Rajapaksa’s brother’s regime. Mahinda Rajapaksa did go in for a lot of loans to rebuild the country after the end of a 26-year civil war,” Al Jazeera’s Minelle Fernandez, reporting from Anuradhapura, said.
“And in the absence of other countries and loan systems, we did turn a lot to China where there was a lot of loans taken and we are in a lot of debt as a country,” she said.
“He has a huge task ahead of him in lifting the Sri Lankan economy out of the doldrums,” Fernandez added.
During the campaign, Rajapaksa promised to cut the 15 percent value-added tax by nearly half and abolish some other taxes, as a way to reignite consumption and growth.
These cuts could lead to a loss of more than 600 billion rupees ($3.31bn) in tax revenues, finance ministry officials said, adding to the pressure on public finances while the country is under a $1.5bn, four-year International Monetary Fund (IMF) loan programme
Growth hit a 17-year low of 3.2 percent in 2018, and the IMF has forecast the expansion to slow further to 2.7 percent in 2019 after the Easter Sunday attacks dented tourism and broader business activity.
Members of government, including Minister of Finance and Media Mangala Samaraweera and two other ministers, resigned on Sunday after the defeat of the ruling party’s candidate in the election.
Wanted: Efficient economic management
Rajapaksa oversaw the military defeat of Tamil separatists under his brother Mahinda’s presidency 10 years ago. He has promised strong leadership to secure the island of 22 million people, the majority of whom are Sinhalese Buddhists.
“That is what the people of Sri Lanka are looking towards, [for Gotabaya Rajapaksa] to bring that same sort of efficiency of management [to the economy] – as many people we spoke to have pointed out – the way he brought the war to an end,” Fernandez said.
“They are hoping that he approaches the economy and other sorts of issues with that same single-minded drive and that he produces results,” she said.
Financial markets rallied on Rajapaksa’s victory.
The Colombo All-Share Index jumped 1.6 percent after the election – the biggest gain since July 29. The rupee rose the most since November 4 to 179.67 per US dollar from 180.20 per dollar on Friday and is at its highest level since August 30, according to Bloomberg data.
“Gotabaya’s economic strategy is likely to focus on more populist measures” as he prepares for parliamentary elections due early next year, Akhil Bery, South Asia analyst at risk consultancy Eurasia Group, told Bloomberg.
“We’re also likely to see a much friendlier posture towards China, but not as antagonistic to the West as some might believe,” Bery said. “Gotabaya is pragmatic and likely to recognize that he will need the US support if Sri Lanka’s debt troubles resurface.”
In addition to the tax cuts, Rajapaksa has also offered more subsidies for farmers. He also plans to renegotiate key deals such as the Singapore-Sri Lanka Free Trade agreement and actively support the rupee to help curb debt repayments, according to Nivard Cabraal, a former central bank governor who was tipped to play a senior role in the new government.
“We know the responsibility and the challenges ahead,” Cabraal told Bloomberg. “We have kept track of the economic developments over the last four and a half years. So we know what to do. There won’t be any time wasted in coming to grips with the current situation,” he added.