‘Low’ voter turnout linked to mass emigration – PAFFREL

A large number of Sri Lankans left the country between 2019 and 2024, which was one of the main reasons for the lower voter turnout in the 21 September Presidential Election compared to 2019, Rohana Hettiarachchi, Executive Director of the People’s Action for Free & Fair Elections (PAFFREL), told The Island yesterday.

Commenting on the low voter turnout, Hettiarachchi said that almost 80% eligible voters had exercised their franchise, compared to approximately 81 percent in the 2015 presidential election, and 74.5% in 2010.

“The voter turnout on 21 September wasn’t low; it’s actually a good percentage. We must remember that around 15 percent of the individuals on the voters’ list are no longer in the country. Additionally, another 500,000 to a million people couldn’t reach polling stations due to various obstacles, including not being granted leave from work. In 2019, about 83 percent voted, but since then, many people have left the country,” he explained.

Discussing the upcoming 14 November general election, Hettiarachchi noted that around 3,000 candidates would contest, compared to approximately 80,000 candidates who contested the local government elections.

He further highlighted that presidential candidates were permitted to spend 109 rupees per voter on election propaganda, while candidates for the 2023 local council elections were authorised to spend 20 rupees per voter.

“I believe candidates in the General Election will be allowed to spend an amount somewhere between these two figures. After the nomination period ends, political party representatives will be summoned to the Election Secretariat within five days to finalise the spending limit per voter during the campaign. We’ve already consulted relevant state entities and election stakeholders, and after considering all inputs, the Election Commission will set spending limits for candidates,” Hettiarachchi elaborated.

He also mentioned that candidates are required to submit their expenditure reports within 21 days of the election. The Election Commission must then make these reports public within 10 days, after which the public can lodge complaints regarding candidate spending.

“Soon, candidates for the presidential election will have to submit their expenditure reports. I expect some candidates to submit reports claiming they haven’t spent any money—these are the so-called ‘dummy candidates’,” he said.

He warned that if the Election Commission does not take steps to address the issue of dummy candidates, their numbers will increase in the future. He noted that there had been a recent proposal to raise the electoral deposits candidates must place when contesting elections.

The proposal suggested that candidates from registered parties contesting the Presidential Election should deposit 2.4 million rupees, up from the current 50,000 rupees. Independent candidates would be required to pay 3.1 million rupees, instead of the current 75,000 rupees.

“I understand there are candidates who receive very few votes, but they are not dummy candidates. These are serious individuals who want to promote their political message. We need to consider such people before drastically increasing the deposits,” he said.

Hettiarachchi also revealed that PAFFREL had identified several polling stations with issues related to accessibility and inadequate facilities. In areas like Nuwara Eliya, many polling stations are set up in places such as tea factories, which have minimal infrastructure.

“We are planning to conduct a study on the facilities available at these polling stations. We want to identify polling centres with very limited facilities and assess whether there are alternative buildings that could be used. Sometimes the Election Commission is forced to use certain buildings because they are the only available structures in the area,” he noted.

In some countries, temporary polling centres are established in easily accessible locations, allowing even the elderly and disabled to vote without difficulty, Hettiarachchi said. “In Sri Lanka, some polling stations are located on small mountains. However, the Election Commission is very mindful of these challenges and is doing its best to address them,” he added.

Hettiarachchi pointed out that, given Sri Lanka’s progress in eliminating voter fraud, the practice of marking voters’ fingers with ink is no longer necessary. This practice was introduced before a valid identity card was required for voting.

“Before 2006, presenting your ID was not mandatory. Now, you cannot vote without a valid identity card, yet we still mark voters’ fingers, mainly as a tradition. Several other countries that mandate identity cards for voting continue this practice. However, it’s worth noting that the Election Commission spends a significant amount of money on this ink,” he concluded.

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Sri Lanka President appoints acting police chief after Supreme Court sacking of ex-IGP

Sri Lanka President Anura Kumara Dissanayake appointed Senior DIG Priyantha Weerasuriya as the Acting Inspector General of Police (IGP), the President’s Media Division (PMD) said.

The President’s Secretary Nandika Kumanayake presented the appointment letter to the Weerasuriya on Friday, the PMD said.

Sri Lanka’s Supreme Court on July 24 suspended previous IGP Deshabandu Tennakoon from serving his office and suggested an acting appointment be made.

The Supreme Court verdict on Tennekoon came after granting leave to proceed for nine fundamental rights petitions filed against his appointment as IGP.

However, previous President Ranil Wickremesinghe did not appoint a successor as the Election Commission declared the presidential elections days after the court order.

Wickremesinghe’s government later said Tennakoon would remain in office, as there are no legal provisions for Wickremesinghe to make an acting appointment after the polls have been declared. But, Tennakoon did not continue in his office.

Prior to this appointment, Weerasooriya served as the Senior SIG in charge of the North Central Province, a position he has held since March 2024.

He has served in the police for 36 years and is the the first officer in the police’s 158-year history to rise from the rank of aPolice Constable to IGP.

He is a law graduate from the University of Colombo and holds a Bachelor of Business Administration in Human Resource Management.

He had served as the Deputy Inspector General of Police (DIG) in charge of Crime and Traffic, as well as the Director of Police Logistics. He has also participated in United Nations peacekeeping missions in East Timor and Haiti

General Election: Postal voting applications open from Oct. 1 – 7

The Commissioner General of Elections, Saman Sri Ratnayake, has announced that postal voting applications for the upcoming parliamentary elections will be accepted from October 01 to October 8.

Speaking at a media conference held in Colombo today (28), Ratnayake explained:

“Postal voting applications will be accepted from October 1 to 8. In accordance with the Parliamentary Elections Act No. 01 of 1981, arrangements for accepting applications for postal votes must be made between the 7th and 14th days after the announcement of the election.”

Accordingly, he requested all postal voters to have their postal vote applications for this parliamentary election certified by their institution head, register their vote, and submit it to the district returning officer.

“This election is based on the 2024 voter list. Therefore, the voter list used for the last presidential election will be utilized,” he added.

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Reading Anura Kumara Dissanayake’s victory By Veeragathy Thanabalasingham

When Parliament elected Ranil Wickremesinghe as President two years ago, it was said that he was the ultimate beneficiary of the unprecedented people’s uprising in Sri Lanka called Aragalaya. But last week’s Presidential election showed who the real beneficiary was.

Just as the Sri Lanka Freedom Party ( SLFP ) founder-leader the Late S.W.R.D.Bandaranaike won the general elections and came to power, three years after the famous 1953 August Hartal (strike), National People’s Power (NPP ) leader Anura Kumara Dissanayake was elected as the ninth Executive President of Sri Lanka after the Aragalaya.

But there are significant differences between the two historic events. Bandaranaike did not support the Hartal but only exploited the resulting political developments to his advantage. The Left leaders who spearheaded the Hartal could not do so. Stunned by the success of that struggle, they were unable to formulate an effective strategy for the next move.

Though Dissanayake did not give leadership to the Aragalaya, he and his NPP gave full support to it. He has become the President today as a result of the change in the political landscape of the country. The old Left leaders could never come to power on their own.

Dissanayake’s victory in marks the first time in Sri Lanka’s political history that a left-wing politician has become the leader of the country. His victory has seen the transition of political power from the traditional political elite, who have been enjoyed a monopoly on power for more than seven decades as if it is their birth right, to someone with a modest family background.

While commenting on the presidential election results, former President Chandrika Bandaranaike Kumaratunga attributed the rise of Dissanayake, son of a humble rural family to the highest political office in the country to her father Bandaranaike’s 1956 ‘ revolution’ without saying anything about the people’s rejection of dynastic politics.

In the words of Professor Jayadeva Uyangoda, one of Sri Lanka’s leading political scientists, the swearing – in of Anura Kumara Dissanayake as Sri Lanka’s President on September 23, symbolises a dramatic shift in the class base of political power — from a privileged minority of Colombo- centric , Westernised elites to a broad coalition of non-elite social forces. The class monopoly of political power institutionalised through democracy has been ruptured by demos themselves.

It is said that a Marxist has come to power for the first time in Sri Lanka. But President Dissanayake cannot be seen as a Marxist in the traditional sense. Since becoming, the leader of the Janatha Vimukthi Peramuma ( JVP), the flagship party of the NPP, ten years ago, he has been leading the party in a very different way from the previous policies and strategies. It is mainly because of his new approach that the NPP has been able to become a popular political force.

Sri Lanka is the second country in South Asia after Nepal to elect a left-wing leader as its head of the government. Pushpa Kamal Dahal alias Prachanda first became prime minister in 2008 after leading a Maoist-communist decade-old armed uprising that ended the monarchy in Nepal, previously known as the world’s only Hindu kingdom. In the past 18 years, he became the prime minister three times.

Political observers say that it remains to be seen whether Sri Lanka follows Nepal, where the Left is no longer discernible from any other liberal bourgeois party.

The NPP under Dissanayake has already begun to break away from the leftist trend to a large extent. It has gone to the extent of promising to continue the economic re-structuring programme started by outgoing President under the guidance of the International Monetary Fund (IMF) and inviting foreign investments.

Dissanayake, while responding to the campaign launched by the opposition based on the JVP’s past, has said that although they have not abandoned their basic principles, there have been major changes in political strategies to suit the current international situation. He also explained that these changes were inevitable because there was no socialist camp in the world today.

The President’s promise to clean up public life was well received among the people who realized that the misrule of the traditional political forces was the cause of the many miseries they were facing, including the economic crisis.

His anti-corruption message and promise to usher in a new political culture inspired young voters yearning for a system change. The election results showed people’s desire to hand over political power to someone outside the traditional political establishment. People looked to Dissanayaka as a ‘candidate for change’.

People realised that the existing political forces facilitated the economic crisis, and the outright rejection of Ranil Wickremasinghe are testimony to the same. The votes Wickremasinghe got were essentially from a tiny section which experienced stability and could create a false discourse of stability for the nation.

Wickremesinghe’s complete reliance on his economic restructuring measures to win the popular vote was the biggest flaw in his electoral strategy. Though having long political experience and rich knowledge, he was unable to grasp the reality that amidst the enormous hardships facing the country in recent times, people were not going to vote only with the economic factor in mind.

One wonders whether he conveniently thought that people are so desperate to wriggle out of the economic misery that they would forget the misrule, family-dominated politics, abuse of power, breakdown of the rule of law and never-ending corruption of the traditional leaders?

It was a big mistake for Wickremesinghe to believe that he could rely on politicians from the Rajapaksa’s party and other parties to form an alliance and contest as an independent candidate when his United National Party (UNP ) did not have a significant vote bank.

As before, the minority communities also did not come forward to support him this time.

The Samagi Bala Janawegaya ( SJB ) leader Sajith Premadasa was viewed by most people as part of the traditional political elite. This is his second defeat in a Presidential election. But Premadasa may have been somewhat satisfied with defeating Wickramasinghe, even if he lost to Dissanayake.

Even President Dissanayake could not get fifty percent of the votes. Therefore, it is imperative for him to understand the nature of the mandate he has received and think of corrective measures.

No one should think simply that the election of Dissanayake and the NPP’s eclipsing the three main mainstream political parties is the end of the latter’s life. Therefore, the President faces insurmountable challenges.

He has announced the date for parliamentary elections less than two months after dissolving Parliament. This is to give no time to other parties to recover from the defeat in the Presidential election.

Dissanayake will ask the people who elected him as President to give his NPP a big victory in the parliamentary elections also to stabilize the economy and fulfil his promises. An important question is whether the results of the parliamentary elections will be based on the way the people voted in the Presidential election or whether the people will elect the NPP with a larger majority of seats to give him the full strength to steer the nation.

Be that as it may, it is necessary to consider the geographical order of the way people voted in the presidential election.

Dissanayake has been elected as President with majority support from South Sri Lanka, especially from the regions where the Sinhalese Buddhist community is dominant. On the contrary, in the predominantly Tamil speaking northern and eastern provinces and in the Hill Country people have voted in large numbers for Premadasa and Wickramasinghe.

It cannot be said that the minority communities rejected Dissanayake but it was the votes of the majority community that made him win. Dissanayake will never say that the Sinhalese people elected him as President like Gotabaya Rajapaksa did. There is a difference between the reason Gotabaya was elected by Sinhalese votes and the reason Dissanayake was elected by them.

At the same time, it is true that significant sections of the Sinhalese Buddhist nationalist forces have identified and supported Dissanayake as a political leader they can trust. But only time will tell whether Dissanayake will courageously resist the pressures of those nationalist forces that are against the legitimate political aspirations of the minority communities whenever he tries to find a solution to the ethnic imbroglio. Minority communities are expecting a new approach from the President regarding their issues.

The election results should not be interpreted as an expression of the people of the North and East not wanting change. Nor can they be accused of voting on ethnic grounds. Even though a so-called Tamil common candidate contested, the Tamil people overwhelmingly voted for two of the main candidates.

The question among the Tamil people is how much their aspirations will be respected within the change that the Sinhalese people want.

Finally, the historic significance of the election of a ‘comrade’ from outside a class that has hitherto monopolized political power in Sri Lanka through democratic means must be properly understood.

Sufficient time and space should be given to him to stabilize his administration and prepare to make good on his promises.

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UNP and SJB in talks to reunite under Sajith’s leadership

The United National Party (UNP) and Samagi Jana Balawegaya (SJB) are in talks to try and reunite under Sajith Premadasa’s leadership.

Former MP Harin Fernando said that a final agreement has not been reached.

Fernando told reporters that the general understanding is that the opposition must unite as one broad alliance to face the Parliament elections.

However, he said some are still looking at personal gain and not putting the country first.

Former Governor Naveen Dissanayake said that there is no objections in the UNP to forming an alliance with the SJB.

Former MP Dayasiri Jayasekera, who is with the SJB-led alliance, said that there had been talks between UNP Leader Ranil Wickremesinghe and SJB Leader Sajith Premadasa.

However, he said no final agreement had been reached.

Wickremesinghe has already indicated he will not contest at the next Parliament election and will also not enter Parliament through the National List.

The former President came third at the just concluded Presidential polls behind Anura Kumara Dissanayake and Sajith Premadasa.

Joe Biden Congratulates AKD on Presidential Victory

U.S. President Joe Biden has congratulated Anura Kumara Dissanayake on his victory in the Sri Lankan presidential election.

President Joe Biden praised election’s free, fair, and peaceful conduct, which he described as a source of pride for the Sri Lankan people. “The people of Sri Lanka chose you as their president in a free, fair, and peaceful election of which they are justifiably proud,” he said.

Biden also expressed his enthusiasm for future collaboration, highlighting the importance of advancing peace, security, and prosperity in the Indo-Pacific region. “I look forward to working with you to advance peace, security, and prosperity in the Indo-Pacific,” he added.

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Japan to restart 11 stalled projects in Sri Lanka; backs Sri Lanka’s new anti-corruption drive

The Japanese Ambassador to Sri Lanka, Mizukoshi Hideaki, affirmed that the Japanese Government is committed to fully supporting efforts to combat corruption and irregularities, a key priority of President Anura Kumara Dissanayake’s administration. He expressed readiness to continue close collaboration with Sri Lanka.

Ambassador Mizukoshi made these remarks during a meeting with the Secretary to the President Dr. Nandika Sanath Kumanayake, at the Presidential Secretariat on Thursday.

He further announced that work on 11 stalled projects funded by the Japanese Government will resume promptly.

Accordingly, these projects include the Kandy City Water Management Project, Phase II of the Bandaranaike International Airport (BIA) Development Project, the Terrestrial Television Broadcast Digitisation Project, the National Transmission and Distribution Network Development Project, Phase II of the Anuradhapura North Water Supply Project, the Rural Infrastructure Development Project, the Kalu Ganga Water Supply Project, and improvements to health and medical services.

Ambassador Mizukoshi stated that the agreement encompasses the swift completion of the first phase of the Habarana-Veyangoda transmission line project and the Anuradhapura North water supply project, both of which are nearing completion with Japanese assistance. He also highlighted the payments related to the recently finished Kelani Ganga new bridge construction project.

The meeting was attended by Deputy Head of the Embassy of Japan in Sri Lanka Nayoki Kamoshida, First Secretary of the Embassy of Japan Ohashi Kenji and Senior Additional Secretary to the President Roshan Gamage.

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China asserts it will not interfere in Sri Lanka’s internal affairs

China asserted it will not interfere in Sri Lanka’s internal affairs and will work with President Anura Kumara Dissanayake and his new administration.

Chinese Foreign Ministry Spokesperson Lin Jian said that China and Sri Lanka are traditional friends and close neighbors.

“We stand ready to work with President Dissanayake and his new administration to uphold the spirit of the Five Principles of Peaceful Coexistence, carry forward the traditional friendship between the two countries, forge greater synergy between our development strategies, deepen high-quality Belt and Road cooperation, and strive for new progress in our strategic cooperative partnership based on sincere mutual assistance and ever-lasting friendship,” the Chinese Foreign Ministry Spokesperson said at a media briefing.

He said that as Sri Lanka’s friendly neighbor, China hopes to see the stability and development of Sri Lanka.

“China is ready to play a constructive role in Sri Lanka’s steady economic and social development under the principle of non-interference in Sri Lanka’s internal affairs and with respect for Sri Lanka’s will,” the spokesperson added.

He said that as Sri Lanka’s friendly neighbor, China and Sri Lanka have all along treated each other with mutual respect and support.

“We hope that Sri Lanka will continue to enjoy national stability and development. We stand ready to play a constructive role for Sri Lanka’s steady economic and social development under the principle of non-interference in internal affairs and with respect for Sri Lanka’s will,” the spokesperson said.

Chinese President Xi Jinping was among the world leaders who congratulated Anura Kumara Dissanayake on being elected Sri Lanka’s new President.

India says political developments in Sri Lanka are matters for Sri Lanka

India says political developments in Sri Lanka are matters for Sri Lanka to handle.

External Affairs Minister (EAM) S Jaishankar on Wednesday expressed his confidence that India’s relations with its neighbours, Sri Lanka and Bangladesh, would remain positive and constructive, despite the recent developments in the two nations.

“I would urge you not to be deterministic about it. It’s not like India is seeking to control every political move of every neighbour,” news agency PTI quoted Jaishankar as saying during an interaction at an event. “That’s not how it works. It doesn’t work, not just for us, it doesn’t work for anybody else,” Jaishankar added during the event titled ‘India, Asia and the World’, hosted by the Asia Society and the Asia Society Policy Institute in New York.

“I’m very confident that in our neighbourhood, the realities of interdependence or mutual benefit and our ability to get along will serve both our interests,” Jaishankar stated, adding, “Those realities will assert themselves. That’s been the history.”

Jaishankar further noted that every few years, some event occurs in the region, and people suggest there is an irretrievable situation. “You then see the correctives beginning to manifest themselves,” he explained, adding, “So, I would take it in that spirit and am quite confident that in both these cases (Sri Lanka and Bangladesh), our relationship would continue to be positive and constructive.”

These remarks were made in light of recent changes in the governments of Sri Lanka and Bangladesh — Anura Kumara Dissanayake being sworn in as Sri Lanka’s new President and Sheikh Hasina’s removal from power in Bangladesh before that.

Regarding Sri Lanka, Jaishankar highlighted that India had extended timely aid during Colombo’s severe economic crisis of 2022.

Highlighting that India “stepped forward” when Colombo was facing a “very deep economic crisis”, and when “nobody else came forward”, Jaishankar said, “And I’m very glad we did it. We did it in a timely manner. We did it on a scale. We provided $4.5 billion, which effectively stabilised the Sri Lankan economy.” Jaishankar added that this assistance was not tied to any political conditionality. “We were doing it as a good neighbour who did not want to see that kind of economic meltdown at our doorstep.”

Jaishankar reiterated that political developments in Sri Lanka are matters for Sri Lanka to handle.

He also explained that each neighbouring country has its own unique dynamics, and it is not India’s place to dictate them.

Marxist-leaning politician Anura Kumara Dissanayake, noted for his past pro-China inclinations, was sworn in as Sri Lanka’s new President on Monday. This event has been closely monitored by India, especially in the wake of the removal of Sheikh Hasina in Bangladesh, sparking concerns that anti-India elements in the region could gain strength.
Dissanayake’s win in Saturday’s election, where he outperformed major candidates, including the incumbent President Ranil Wickremesinghe and Namal Rajapaksa, marks a significant shift in Sri Lanka’s political landscape.

he election, which followed mass protests that led to Gotabaya Rajapaksa’s removal in 2022, carried high stakes for New Delhi due to its major geopolitical and security interests in the Indian Ocean.

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Fitch says outcome of polls in Sri Lanka adds to uncertainty

Fitch Ratings believes the outcome of the Presidential Election in Sri Lanka has added uncertainty to the country’s policy direction.

Meanwhile, Fitch Ratings has affirmed Sri Lanka’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘RD’ (Restricted Default) and Long-Term Local-Currency IDR at ‘CCC-‘. Fitch typically does not assign Outlooks to issuers with a rating of ‘CCC+’ or below.

A full list of rating actions is at the end of this rating action commentary.

Key Rating Drivers

Restructuring Negotiations Ongoing: The sovereign remains in default on its foreign-currency obligations, while restructuring negotiations are ongoing with Sri Lanka’s private external creditors. The authorities’ recent announcement that a preliminary debt restructuring agreement has been reached, in principle, with members of the steering committee of the Ad Hoc Group of Bondholders (representing foreign holders of Sri Lanka’s international sovereign bonds) and China Development Bank (A+/Negative) suggests progress is being made.

The agreement comes after the 12 April 2022 announcement suspending debt servicing on several categories of external debt, including bonds issued in international capital markets, foreign currency-denominated loans and credit facilities with commercial banks and institutional lenders. The Long-Term Foreign-Currency IDR has been on ‘RD’ since May 2022, once the grace period expired.

Policy Uncertainty Following Elections: Sri Lanka’s September 2024 Presidential election was won by one of the opposition leaders. Fitch believes the result add uncertainty to the country’s policy direction and could lead to a delay in the completion of the foreign-currency debt restructuring or renegotiation of the IMF programme. The upcoming 2025 budget, to be adopted by November 2024, could offer clarity on the new government’s policies.

Local–Currency Debt Exchange Complete: Sri Lanka completed the local-currency portion of its domestic debt optimisation in September 2023. This followed the exchange of the Central Bank of Sri Lanka’s treasury bills and provisional advance into new treasury bonds and bills. This led us to upgrade the Local-Currency IDR to ‘CCC-‘. The rating is being affirmed at this level.

Government Debt to Stay High: The IMF forecasts Sri Lanka’s gross general government debt/GDP ratio to decline only gradually to about 103% of GDP by 2028, from about 116% in 2022. This forecast incorporates a local- and foreign-currency debt restructuring scenario. However, this level of debt would still be elevated, even after the restructuring.

External Metrics Improving: Foreign-currency (FX) reserves have been improving, with gross FX reserves reaching around USD6.0 billion in August 2024, against USD4.4 billion at end-2023, partly due to the suspension of external debt service. Other supporting factors include an uptick in tourism and overseas worker remittances. The current account was in a surplus in 2023 and we expect a surplus in 2024. The sovereign, however, remains dependent on official financing sources without access to international capital markets.

Stronger Revenue Generation: Weak IMF program implementation, in particular of fiscal measures, remains a risk to achieving debt sustainability. Sri Lanka has a weak longer-term revenue raising record, but the authorities have implemented several major tax measures since May 2022 to boost revenue collection and achieve debt sustainability. These included raising the corporate income tax rate, hikes to the value-added tax rate and raising fuel excise taxes. This saw revenue collection improve by 42% yoy in 1H24.

Additional fiscal measures in the pipeline include an increase in the corporate income tax to 45%, from 40%, for certain types of economic activity, an additional value-added tax rate on the supply of digital services, further tax administration reforms as well as limiting tax exemptions and making them more transparent.

Economy on a Recovering Trend: We expect economic growth to recover to 3.9% in 2024 and average at 3.6% over 2025-2026. Real GDP growth, in seasonally adjusted terms, recovered to about 5.0% yoy in 1H24 after contracting by 7.0% during 1H23, driven by a pick-up in industrial growth to 11.3% after a contraction of about 18.0% in 1H23. Services also recovered by about 2.7% during the same period after a contraction in 1H23.

Inflation in Check: We expect further easing of monetary policy over 2024-2026, after the Central Bank of Sri Lanka reduced the standing deposit facility rate by a cumulative 725bp since June 2023, as underlying inflationary pressure remains muted. Inflation was about 0.6% in August 2024, in seasonally adjusted terms, and has been in the single digits for over a year. A surge in inflation, peaking in September 2022 at around 67%, was successfully curtailed by the central bank.

Banking Sector Stabilising: The banking sector’s non-performing loans remain high, partly owing to the economic stress associated with the sovereign default. However, the domestic bank operating environment continues to show signs of stabilisation, in line with improved economic indicators. This supports the recovery in banks’ operational flexibility. The completion of the local-currency portion of Sri Lanka’s domestic debt optimisation was a major step towards reducing the impact of the sovereign’s debt restructuring on the banking sector.

ESG – Governance: Sri Lanka has an ESG Relevance Score of ‘5’ for Political Stability and Rights as well as for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model (SRM). Sri Lanka has a medium WBGI ranking in the 36th percentile, reflecting a recent record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption.

ESG – Creditor Rights: Sri Lanka has an ESG Relevance Score of ‘5’ for Creditor Rights, as willingness to service and repay debt is highly relevant to the rating and is a key rating driver with a high weight. The affirmation of Sri Lanka’s Long-Term Foreign-Currency IDR at ‘RD’ reflects a default event.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
External Finances: The Long-Term Foreign-Currency IDR is at the lowest level and cannot be downgraded.

Public Finances: The Local-Currency IDR would be downgraded if further restructuring or a default on local-currency debt becomes probable due to an unsustainable debt burden or inability to raise revenue.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
External Finances: Completion of the foreign-currency commercial debt restructuring that Fitch judges to have normalised the relationship with private-sector creditors would result in an upgrade of the Long-Term Foreign-Currency IDR.

Public Finances: A sustained decline in the general government debt/GDP ratio that is underpinned by the implementation of a medium-term fiscal consolidation strategy and faster economic growth.

Sovereign Rating Model (SRM) and Qualitative Overlay (QO)
Fitch’s proprietary SRM assigns Sri Lanka a score equivalent to a rating of ‘CCC+’ on the Long-Term Foreign-Currency IDR scale. In accordance with the rating criteria for ratings in the ‘CCC’ range and below, Fitch has not used the SRM or QO to explain the ratings, which are instead guided by Fitch’s rating definitions.

Fitch’s SRM is the agency’s proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign-Currency IDR. Fitch’s QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

Country Ceiling

Sri Lanka’s Country Ceiling is ‘B-‘. For sovereigns rated ‘CCC+’ or below, Fitch assumes a starting point of ‘CCC+’ to determine the Country Ceiling.

Fitch’s Country Ceiling Model produced a starting point uplift of zero notches. Fitch applied a +1 notch qualitative adjustment under the balance of payments restrictions pillar, reflecting that the private sector has not been prevented or significantly impeded from converting local currency into foreign currency and transferring the proceeds to non-resident creditors to service debt payments. Fitch does not assign Country Ceilings below ‘CCC+’, and only assigns a Country Ceiling of ‘CCC+’ in the event that transfer and convertibility risk has materialised and is affecting the majority of economic sectors and asset classes.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Sri Lanka has an ESG Relevance Score of ‘5’ for Political Stability and Rights, as WBGIs have the highest weight in Fitch’s SRM and are highly relevant to the rating and a key rating driver with a high weight. As Sri Lanka has a percentile rank below 50 for the respective governance indicator, this has a negative impact on the credit profile.

Sri Lanka has an ESG Relevance Score of ‘5’ for Rule of Law, Institutional & Regulatory Quality and Control of Corruption, as WBGIs have the highest weight in Fitch’s SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. As Sri Lanka has a percentile rank below 50 for the respective governance indicator, this has a negative impact on the credit profile.

Sri Lanka has an ESG Relevance Score of ‘4’ for Human Rights and Political Freedoms, as the Voice and Accountability pillar of the WBGIs is relevant to the rating and a rating driver. As Sri Lanka has a percentile rank below 50 for the respective governance indicator, this has a negative impact on the credit profile.

Sri Lanka has an ESG Relevance Score of ‘5’ for Creditor Rights, as willingness to service and repay debt is highly relevant to the rating and is a key rating driver with a high weight. Sri Lanka’s Long-Term Foreign-Currency IDR is at ‘RD’, as the sovereign is in default on its foreign-currency debt obligations.

The highest level of ESG credit relevance is a score of ‘3’, unless otherwise disclosed in this section. A score of ‘3’ means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch’s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch’s ESG Relevance Scores, visit www.fitchratings.com/topics/esg/products#esg-relevance-scores