Sri Lanka

Politics:

• Analysis

  Sri Lanka politics: Military muscling

  Politics in Sri Lanka: Military muscling

  With the civil war long over, the armed forces are busy with beauty salons

  JOSEPH STALIN is unhappy. The boss of a Sri Lankan teachers' union claims that the country's schools are losing their independence. Last month, unions say, nearly 4,000 headteachers were invited to interviews at the National Cadet Corps. Successful applicants will get 45 days of training, and then full military titles. The idea, supposedly, is to improve discipline in schools.

  The army's grip is spreading across Sri Lankan society. Activists talk of a general effort to promote military culture among the young, especially among the ethnic Sinhalese majority. Prominent academics and former diplomats say that militarisation has been going on ever since the end of a bloody civil war in 2009. No effort has been made since then to shrink the armed forces.

  Indeed, their image is promoted everywhere. On fine evenings in a park in Nawala, a suburb of Colombo, the capital, office workers and families mingle among winding paths and ponds. Children stop to gaze at a favourite attraction: a battle tank beside a gurgling fountain. The park opened in January; it is one of many built by the armed forces.

  Elsewhere soldiers fix roads and bridges, put up and renovate houses, remodel cities and even grow and sell vegetables. The army has a brand of hotels, Laya. Not to be outdone, in September the navy launched its own resort called Sober Island (rum, or at least alcohol, served). The navy has also taken to dredging canals and running boat services. Meanwhile, the air force offers helicopter tours and even a beauty salon, "Airforce Clippers", in Colombo, handy for bridal dressing, sari draping and possibly a crew-cut.

  Behind all this is the defence secretary, Gotabaya Rajapaksa, who also holds the portfolio of urban development. This month his elder brother, President Mahinda Rajapaksa, officially opened a two-storey banqueting hall on the edge of a lagoon, built by the air force.

  Sceptics say all this kind of stuff should be curbed. In the north and east, where the Tamil minority bore the brunt of war, the presence of military men breeds worry. No good reason exists for them to breed crocodiles, run school seminars, conduct whale-watching tours, or operate nurseries. The government retorts that it is better to use servicemen and -women for development than demob them. Their cheap labour, it argues, saved the country 1.5 billion rupees ($12m) last year. It denies private businesses suffer from the competition.

  Yet activists fear that a chief reason for spreading military influence is indoctrination. "Leadership training" for university entrants is now run by the army inside military camps, for example. The other Stalin would have applauded.

  March 23, 2013

• Background

  Sri Lanka: Key figures

  Mahinda Rajapaksa

  Mr Rajapaksa of the Sri Lanka Freedom Party (SLFP) is Sri Lanka's president and head of the ruling United People's Freedom Alliance government. Following his triumph over the rebel Liberation Tigers of Tamil Eelam (LTTE, Tamil Tigers) in 2009, he remains highly popular. Mr Rajapaksa is viewed as a dedicated nationalist, and in economic terms as a left-leaning populist. Both positions appeal to the electorate, and especially to rural dwellers, Sinhalese people and poorer groups. He is closely associated with the eponymous Mahinda Chinthana policy, which focuses on promoting rural development. Although his hardline stance in the civil war appears to have been justified, his grasp of economic policy has occasionally seemed less deft. Given his personality-centred style of leadership, Mr Rajapaksa is likely to be held accountable for any government failures, in the same way that his popularity has been boosted by the administration's successes. Public concern over the rising cost of living thus poses a threat to his popularity.

  The Rajapaksa family

  One of the president's brothers, Gotabhaya, is secretary of defence. Another, Chamal, has been elected as parliamentary speaker, while a third, Basil, is minister for economic development and tourism. Between them, the Rajapaksa brothers dominate many of the most important sectors of the economy as well as the largest departmental budgets in government. In addition, Mr Rajapaksa's nephew, Shashindra (Chamal's son), has been appointed as chief minister of Uva province, and the president's son, Namal, entered parliament following the April 2010 general election. The family has strong ties to Hambantota in the south of the country. The region has recently seen a lot of development activity, including investments in a new port and an international airport.

  Sajith Premadasa

  Mr Premadasa, the son of a former president, Ranasinghe Premadasa, is increasingly spoken of as a likely future head of the main opposition United National Party (UNP), of which he is deputy leader. The UNP's current leader, Ranil Wickremasinghe, has repeatedly led his party to electoral defeat. Although Mr Wickremasinghe's power base in the UNP is still strong, he is likely to be forced out before the next presidential election in 2015 in favour of Mr Premadasa, who is seen as being more charismatic.

  Sarath Fonseka

  The former head of the armed forces, Mr Fonseka was a candidate in the 2010 presidential election but lost to Mr Rajapaksa. He aligned himself with the Marxist Janatha Vimukthi Peramuna (JVP) party and secured a seat in parliament at the 2010 general election, campaigning as the head of the JVP's Democratic National Alliance group, but was barred from the legislature following his conviction on corruption charges. Having served two years in prison, Mr Fonseka was released in mid-2012, having received a presidential pardon. He has since pledged to work with the opposition parties to seek to oust Mr Rajapaksa's government at the next general election. Mr Fonseka's legal troubles are far from over, however, and it remains to be seen whether the opposition parties will welcome his support, given that he is a divisive figure (particularly among minorities).

  September 24, 2012

• Structure

  Sri Lanka: Political structure

  Official name

  Democratic Socialist Republic of Sri Lanka

  Form of state

  Executive presidency based on the French model

  The executive

  The president is the head of state, with executive powers. Elected for a term of six years by universal suffrage, the president may dissolve parliament at any time once a year has passed following a legislative election. Following a constitutional amendment, there is now no limit on the number of terms that a president may serve

  National legislature

  Unicameral legislature; the 225 members are directly elected for six years under a system of modified proportional representation

  Local government

  Under the 13th amendment to the constitution, passed in 1987, extensive powers have been devolved to nine directly elected provincial councils with a view to meeting Tamil demands for greater autonomy. The United People's Freedom Alliance (UPFA), which rules at national level, dominated provincial council elections in 2011

  National elections

  The president and parliament are elected for six-year terms, but elections may be called early provided that certain constitutional conditions are met. In the 2010 presidential election the UPFA candidate, Mahinda Rajapaksa, secured re-election by a clear margin, winning around 58% of the vote; an estimated 74.5% of the electorate voted. The next presidential election will take place by November 2015, and the next parliamentary election must be held by April 2016

  National government

  Mr Rajapaksa, of the Sri Lanka Freedom Party (SLFP, the main component of the UPFA), was elected for his first term as president in 2005 and was re-elected in January 2010. The UPFA was again victorious in the April 2010 parliamentary election, securing 60.4% of the vote; this gave it 144 seats in the legislature. Following a number of changes in party affiliation, the UPFA now holds 161 seats in parliament

  Main political organisations

  Governing coalition: the UPFA, now based mainly around the People's Alliance (PA), which itself is built around the SLFP. Other main parties: Janatha Vimukthi Peramuna (JVP), United National Party (UNP), Sri Lankan Muslim Congress (SLMC), Tamil Makkal Viduthalai Pulikal (TMVP) and Tamil National Alliance (TNA)

  Main members of the government

  President; also in charge of defence & finance: Mahinda Rajapaksa

  Prime minister: D M Jayaratne

  Key ministers

  Agriculture: Mahinda Yapa Abeywardena

  Defence secretary: Gotabhaya Rajapaksa

  Disaster management: A H M Fowzie

  Economic development: Basil Rajapaksa

  Foreign affairs: G L Peiris

  Industry & commerce: Rishad Bathiyutheen

  Irrigation & water resources management: Nimal Siripala de Silva

  Justice: Athauda Seneviratne

  Petroleum industries: Anura Priyadarshana Yapa

  Post & telecommunications: Jeewan Kumaranatunga

  Power & energy: Champika Ranawaka

  Public management reforms: Ratnasiri Wickramanayake

  State resources & enterprise development: P Dayaratne

  Central bank governor

  Ajith Nivard Cabraal

  March 22, 2013

• Outlook

  Sri Lanka: Key developments

  Outlook for 2013-17

  • Mahinda Rajapaksa will remain president until the next election, due in 2015. He will be the favourite to win the contest, owing to forecast continued rapid economic growth in the next few years and the advantages of incumbency.
  • The United People's Freedom Alliance (UPFA) government is not expected to face any significant parliamentary challenge during the remainder of its six-year term (which ends in 2016), given the unusually large size of its majority.
  • The Economist Intelligence Unit expects real GDP growth to slow to an average of 6.6% a year in the forecast period, from 7.5% in 2010-12, owing to weaker external demand.
  • The Sri Lanka rupee, which weakened by 13.4% against the US dollar in 2012, is expected to remain broadly stable in 2013-17, averaging SLRs127.7:US$1.
  • The average rate of consumer price inflation is forecast to slow to 6.5% in 2013, from 7.5% in 2012, as global oil prices fall and the local currency stabilises.
  • Sri Lanka's merchandise trade deficit is forecast to widen steadily as import growth continues to outpace expansion in merchandise exports. The deficit will reach US$11.9bn in 2017, compared with an estimated US$7.2bn in 2012.
  • The current-account deficit is expected to shrink to the equivalent of 4.3% of GDP by 2017, from an estimated 6.5% in 2012. The goods trade deficit will be partially offset by a surplus on the services account from 2014 onwards.

  Review

  • Sri Lanka's human rights record has come under renewed scrutiny during the 22nd regular session of the UN Human Rights Council, which began in late February and continues until end-March.
  • A hardline Sinhalese-Buddhist group, the Bodu Bala Sena, continued its campaign against Sri Lanka's Muslim minority during February, causing communal tensions to rise.
  • Despite earlier indications to the contrary, the Central Bank of Sri Lanka announced in mid-February that the government had decided not to pursue its bid for financial assistance under an Extended Fund Facility with the IMF.
  • In late February the government announced that fuel prices would be raised for the second time in two months. Domestic fuel prices are now at an all-time high.
  • Consumer price inflation remained elevated in February, at 9.8% year on year, similar to its pace in January.
  • Sri Lanka's merchandise trade deficit narrowed slightly in 2012, to US$9.1bn, from a record US$9.7bn in 2011.

  March 22, 2013

Economy:

• Background

  Sri Lanka: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	21.3	Population growth	1.0
  GDP (US$ m; market exchange rate)	58,352	Real GDP growth	6.4
  GDP (US$ m; purchasing power parity)	126,210b	Real domestic demand growth	7.0
  GDP per head (US$; market exchange rate)	2,746	Inflation	9.1
  GDP per head (US$; purchasing power parity)	5,938b	Current-account balance (% of GDP)	-5.4
  Exchange rate (av) SLRs:US$	127.6	FDI inflows (US$ m)	708.0
  a Actual. b The Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Background: Ceylon was a British colony from 1815 to 1948, when the island gained independence. It was renamed Sri Lanka on becoming a republic in 1972. Mahinda Rajapaksa of the Sri Lanka Freedom Party (SLFP) has been president since 2005. The SLFP is the largest element of the ruling United People's Freedom Alliance (UPFA) coalition, which won the April 2010 parliamentary election. Almost three decades of civil war in Sri Lanka ended when the government conclusively defeated the rebel Liberation Tigers of Tamil Eelam (LTTE, Tamil Tigers) in 2009.

  Political structure: Sri Lanka is a parliamentary democracy, but the presidency is the main seat of power. The president and parliament serve maximum terms of six years. The UPFA currently dominates the legislature and has managed to wield a two-thirds majority to alter the constitution. These changes, agreed in 2010, strengthened further the authority of the already powerful presidency, notably by removing the limit on the number of terms that a president can serve.

  Policy issues: Sri Lanka has made impressive progress on privatisation and reform of its tax, tariff and foreign investment regimes under past governments. Reducing the fiscal deficit, containing inflation and promoting development, especially in rural areas, are the UPFA government's main goals. In 2009 the government signed a Standby Arrangement with the IMF, thus buying time to address the island's chronic trade deficit. Following its military victory against the LTTE, the government has emphasised the importance of reconstruction work and the need to resolve Tamils' political grievances, but its commitment to the latter goal has been questioned by its critics. State expropriation of private assets in 2011 has raised concerns.

  Taxation: The top corporate tax rate was cut from 35% to 28% in April 2011. The highest rate of personal income tax also fell, to 24%. Indirect taxes are the main source of tax revenue, but direct tax revenue is likely to rise as the tax net is widened.

  Foreign trade: According to the IMF, the trade deficit (on a balance-of-payments basis) expanded sharply in 2011, to US$7.7bn, from US$3.5bn in 2010. Exports rose from US$8.6bn in 2010 to US$10.6bn in 2011, but imports grew even faster, increasing from US$12.1bn to US$18.2bn, amid strong expansion in domestic demand.

  Principal exports 2011	% of total	Principal imports 2010	% of total
  Textiles & garments	41.3	Mineral products	22.4
  Tea	14.7	Machinery & equipment	22.0
  Diamonds & gems	5.4	Textiles	12.8
  Petroleum products	5.2	Base metals	1.8
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  US	21.5	India	21.9
  UK	12.1	China	10.7
  Italy	5.9	Singapore	7.8
  Germany	5.1	Iran	7.3

  Download the numbers in Excel

  Download text file (csv format)

  March 22, 2013

• Structure

  Sri Lanka: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 22, 2013

• Outlook

  Sri Lanka: Country outlook

  Sri Lanka: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The president, Mahinda Rajapaksa of the Sri Lanka Freedom Party (SLFP), is half way through his second six-year term and continues to be idolised as the man who in May 2009 finally defeated the rebel Liberation Tigers of Tamil Eelam (Tamil Tigers) after a civil war that had lasted for nearly three decades. The United People's Freedom Alliance (UPFA, of which the SLFP is the main component) won a landslide victory at the parliamentary election in April 2010 and performed strongly in polls for provincial councils in 2011-12. The UPFA government is not expected to face any significant parliamentary challenges during the remainder of its six-year term, given its exceptionally large majority and the weakness of the opposition.

  ELECTION WATCH: The next presidential contest is due in 2015. Mr Rajapaksa successfully scrapped the limit on the number of presidential terms that one person can serve through a constitutional amendment in 2010, which simultaneously increased the president's powers and reduced checks on his office. He is likely to be the UPFA's candidate in 2015, and, given his personal popularity, will be strongly placed to win a third term. Although Mr Rajapaksa was re-elected by a substantial margin in January 2010, he faced accusations by international observers and advocacy groups that he had used state resources to support his campaign. The UPFA also won a landslide victory in the parliamentary election in April 2010, and dominated polls for provincial councils and local authorities in 2011-12. The next parliamentary election is due by 2016. Speculation abounds that the government is considering an early poll, perhaps in 2013, in an attempt to secure a renewed popular mandate while the economy continues to grow strongly.

  INTERNATIONAL RELATIONS: Relations between the UPFA and Western governments will remain tense, given concerns about the deterioration in the island's human rights environment during the final phase of the civil war--a process that has still not been fully reversed. Ties with India have come under strain in the past year following India's vote at the UN Human Rights Council calling on Sri Lanka to investigate fully the death of Tamil civilians towards the end of the civil war. Disputes between the island and India's southern state of Tamil Nadu over fishing, training of Sri Lankan military personnel in India and reports of mistreatment of Sri Lankans visiting the state have caused the relationship to fray further. But both India and China will remain important sources of funding for infrastructure projects and military assistance, although the terms may be less favourable than those applying to concessional loans from established aid donors.

  POLICY TRENDS: Although Mr Rajapaksa and the UPFA are left-leaning, the government has declared that improving the business environment will be a priority in the next five years. However, vacillation over policy implementation and government interference at the microeconomic level will remain problems. In 2011-12 the administration undertook a programme of tax reform, simplifying and cutting taxes. In the budget for 2013, which was introduced in parliament in November 2012, the government announced a series of new tax measures, including a "nation-building" tax, in addition to increasing taxes and customs duties in certain sectors, in a bid to increase revenue as a proportion of GDP. The direction of policy reform is thus uncertain.

  ECONOMIC GROWTH: A drought and weaker external demand dampened economic expansion in 2012 after several years of rapid growth. Following the end of the civil war in 2009, the economy expanded by an average of 8.1% a year in 2010-11. Last year, however, below-average rainfall took a toll on the domestic economy, with real GDP growth estimated to have slowed to 6.2%. As many as 15 of Sri Lanka's 25 districts suffered drought, affecting output of agricultural products (particularly tea) in the second half of 2012 and electricity production throughout the year. Reduced rural incomes and depreciation in the value of the Sri Lanka rupee (which made imports more expensive) are believed to have held back private consumption growth last year. But government consumption growth strengthened, in line with the administration's efforts to soften the impact of inclement weather on farmers.

  INFLATION: Upward price pressures have remained strong in the past year, for a variety of reasons. Food products account for more than 40% of the consumer price index, and food price increases are thus a crucial determinant of the overall inflation rate. The island remains a net importer of food, and the weakness of the Sri Lanka rupee has made imports more expensive. In addition, the imposition by the US of sanctions on global imports of oil from Iran--the source of 90% of Sri Lanka's oil imports before sanctions were introduced--has forced the country to import from other, more expensive sources.

  EXCHANGE RATES: Following the move to a lightly managed float in February 2012, when the Central Bank of Sri Lanka abandoned the trading-band system that it had previously used, the Sri Lanka rupee fell sharply, with the result that the currency depreciated by 13.4% on average against the US dollar last year. In 2013-17, as export growth accelerates and foreign investment inflows pick up, the Sri Lanka rupee will hold fairly steady against the US dollar in 2013-17, averaging SLRs127.7:US$1.

  EXTERNAL SECTOR: Sri Lanka's merchandise exports have been adversely affected by lower global prices for several of the country's major exports, including tea and rubber, as well as by weak demand from the US and the EU. The drought on the island hit tea production and reduced hydropower output in 2012, necessitating greater imports of oil for electricity generation. Sri Lanka's merchandise trade deficit is forecast to widen steadily as import growth continues to outpace expansion in merchandise exports, reaching US$11.9bn in 2017, compared with an estimated US$7.2bn in 2012.

  March 25, 2013

• Forecast

  Sri Lanka: Country forecast summary

  Country forecast overview: Highlights

  • The main political risks in 2013-17 are likely to arise from the strains placed on democratic institutions by the overwhelming dominance of the president, Mahinda Rajapaksa, and his ruling United People's Freedom Alliance (UPFA). The growing influence of the small clique surrounding Mr Rajapaksa and led by members of his family threatens to undermine institutional stability in the long term, while attacks on the media that have been linked to the government are also endangering democracy.
  • The virtual destruction of the rebel Liberation Tigers of Tamil Eelam (Tamil Tigers) in May 2009 ended Sri Lanka's civil war and will lead to a loosening of security restrictions in 2013-17. But isolated terrorist attacks are still a possibility. Neither improved levels of investment and economic opportunity in the north and east, nor half-hearted efforts to devolve power to provincial authorities, are likely to result in a significant reduction in tensions between the Sinhalese majority and the Tamil minority in the forecast period.
  • Although Mr Rajapaksa and the UPFA are left-leaning, the government has declared that improving the business environment will be a priority in the next five years. However, vacillation over policy implementation remains a problem. Moreover, the government has a pronounced tendency to interfere at the microeconomic level.
  • The Economist Intelligence Unit expects real GDP growth to slow to 6.6% a year on average in 2013-17, from an annual average of 7.5% in 2010-12, owing to weaker external demand. Private consumption, which accounts for almost 70% of nominal GDP, will be the main driver of economic expansion, fuelled by ri
  • sing incomes and remittances from Sri Lankans abroad.
  • In February 2012 the Central Bank of Sri Lanka abandoned the trading-band system that it had previously used to manage the exchange rate of the Sri Lanka rupee and switched to a lightly managed float. The value of the currency subsequently fell sharply, depreciating by 13.4% on average against the US dollar in 2012. It is expected to remain broadly stable in 2013-17, at SLRs127.7:US$1 on average, as export growth accelerates and foreign investment inflows pick up.
  • As the Sri Lanka rupee stabilises and global prices for food and fuel decline, the pace of consumer price inflation is expected to slow. However, the central bank's recent bout of monetary loosening will mean that price pressures remain elevated in 2013, and we forecast that inflation will average 6.5% this year. Modest supply-side improvements in 2014­17 should limit the rate of price increases to 6.2% a year on average.

  

  March 22, 2013

View detailed map

Country Briefing

Land area

65,610 sq km

Population

21.1m (2011; IMF estimate)

Main towns

Population in '000 (2010):

 Colombo (capital): 2,553

 Gampaha: 2,177

 Kurunegala: 1,563

 Kandy: 1,431

 Kalutara: 1,135

 Ratnapura: 1,125

Climate

Tropical

Weather in Colombo

Hottest month, May, 26-31°C (average daily minimum and maximum); coldest month, December, 22-29°C; driest month, February, 69 mm average rainfall; wettest month, May, 371 mm average rainfall

Languages

Sinhalese, Tamil, English

Measures

The metric system is now predominant

Currency

Sri Lanka rupee (SLRs); SLRs1 = 100 cents. Average exchange rate in 2012: SLRs127.6:US$1

Time

5 hours 30 minutes ahead of GMT

Fiscal year

January-December

Public holidays

February 4th (National Day); May 1st (May Day); also major Buddhist, Hindu, Muslim and Christian holidays

January 22, 2013