Investors underestimate the political turbulence in Sri Lanka: Expert

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Sri Lanka Prime Minister Ranil Wickremesinghe, center, speaks to supporters at the prime minister's official residence in Colombo on December 16, 2018.

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Ishara S. Kodikara | AFP | Getty Images

Sri Lanka Prime Minister Ranil Wickremesinghe, center, speaks to supporters at the prime minister’s official residence in Colombo on December 16, 2018.

What might seem as a crisis averted in Sri Lanka — is actually far from being over and investors could potentially be underestimating the level of uncertainty in the country, an expert told CNBC.

The hostility between the country’s top two statesmen reached its peak in October when President Maithripala Sirisena fired Prime Minister Ranil Wickremesinghe, claiming the action was within his constitutional rights and swore in Mahinda Rajapaksa — a former president whose decade-long regime had a track record of suppressing free speech, intimidating minorities and harassing critics.

After that, Sirisena forced the country’s parliament into a three-week recess, stopping lawmakers from holding a no-confidence vote against Rajapaksa.

Last month, the country’s supreme court ruled that the president’s moves to dissolve parliament and prepare for snap elections were illegal and unconstitutional. Sirisena complied with court orders and reinstated Wickremsinghe as prime minister in mid December.

While that development seemed to be a return to the status quo, it is “at best an uneasy and fragile truce” explained Sasha Riser-Kositsky, senior analyst at political risk consultancy Eurasia Group.

“What I think is under appreciated by a number of investors is how fragile things still are. The relationship between the prime minister and the president is fundamentally broken. The president has now shown that he is willing to take pretty out-there unconstitutional actions, there’s nothing preventing him (from doing) something like this again,” Riser-Kositsky said.

The country is set for its political divisions to yet again come to a head during presidential elections that are expected to occur in late 2019 and the parliamentary elections that are scheduled for the 2020.

“It’s going to be a pretty rocky and tumultuous time through the next elections. Governance rarely works when the two most senior figures in government despise one another. And one is continuously seeking means to undermine the other,” he said.

“It does not make for stability or policy making. And that’s the scenario investors will confront in Sri Lanka for much, if not all, of 2019,” he added.

The country has already suffered some economic repercussions: Reports said the country’s financial sector and tourism industry have taken a hit following the political crisis.



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