Economists and commercial bank dealers are uncertain about Sri Lanka’s economic performance as presidential and parliamentary elections take up the first quarter of the year, and the feeling of uncertainty is worse than during the time when the war against the LTTE escalated in the later part of 2008 and early 2009.

"There is a period of uncertainty until May this year because of the presidential and parliamentary elections. The outcome of the parliamentary election in April will depend on the outcome of the presidential election later this month and there will be an element of uncertainty until then," Executive Director of the Institute of Policy Studies, Dr. Saman Kelegama said.

"Sustainable development would need political stability. Apart from fulfilling infrastructure requirements, inward remittances, tourism and export development would need a stable political climate," he told the Island Financial Review.

"What ever the outcomes of both elections, the priority of the incumbent government would have to be to try and bring down the budget deficit, which is the root cause of Sri Lanka’s macro-economic problems.

"If the budget deficit can be contained, other key areas of development would fall into place and this is a prerequisite for macro economic stability," Dr. Kelegama said.

Opportunities passing by?

Professor Sirimal Abeyratne, Senior Economics Lecturer, University of Colombo, said Sri Lanka has an opportunity to lay down the policy groundwork for sustainable economic growth of between 8 to 10 percent each year. "But with elections around the corner this is going to be a major challenge," he said.

"The global financial crisis and the end of the decades-long war gave us an opportunity to establish the preconditions for sustainable economic growth, namely policy reforms. Now we have to ask ourselves whether we are making use of this opportunity," Prof. Abeyratne told the Island Financial Review.

He said the future of Sri Lanka’s economic progress depended on long term policy reforms that needed to be made sooner than later, for which political stability was crucial.

Dealers stumped…

Dealers said it was difficult to answer queries from investors, exporters and importers.

"Even at the height of the war we could make predictions as to the movement of the exchange rate, inflation and interest rates, and this was crucial for businessmen who need to budget ahead. Now, however, we are facing uncertainty we have not faced before," a dealer said.

"We simply cannot predict which way the exchange rate would go and how it would affect inflation and interest rates in the process because of the political uncertainty at this time. We simply inform some of our clients that the politics is too hard to gauge," he said.