The Asian Development Bank (ADB) has sounded the alarm regarding Sri Lanka's economic future, citing the looming uncertainty surrounding the upcoming elections as a potential catalyst for a downward trend.
The island nation is gearing up for a presidential election later this year and a parliamentary election slated for mid-next year, but political ambiguity hangs heavy over the sphere.
Opposition parties have vowed to overturn the current IMF-linked reforms, which have garnered disapproval among the populace.
President Ranil Wickremesinghe, emphasized the precariousness of turning away from the IMF's prescribed path, warning of a potential economic collapse if reforms are not steadfastly followed.
The ADB, in its recent South Asian chapter's economic trends report, highlighted the risks associated with Sri Lanka's current trajectory. "Among them, the most important is uncertainty associated with the upcoming elections, including any possible impact on fiscal policy and reform implementation," the report highlighted.
Despite signs of economic recovery and a resurgence in growth, the specter of political instability looms large.
"Inflation decelerated in single digits last year following a peak in 2022 and will remain below 10 per cent in 2024 and 2025. Challenges remain, and the upcoming electoral cycle must not delay the reforms required to address the recent economic crisis. Sri Lanka needs to address vulnerability to poverty to ensure inclusive growth," the ADB report cautioned.
Negotiations for debt restructuring are ongoing, with the IMF playing a pivotal role.
Any delays in finalizing these agreements or obstacles in passing crucial legislation could further dampen economic sentiment and derail growth prospects, according to the ADB report.
In March, the IMF announced a staff-level agreement with Sri Lanka, paving the way for access to USD 337 million from the nearly USD 3 billion bailout package approved in 2023.
Despite releasing two tranches totaling USD 660 million in 2023 and commending Colombo for its macroeconomic policy reforms, the IMF emphasized the importance of maintaining momentum in implementing necessary measures to secure the nation's economic stability.
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