Sri Lanka’s central bank Wednesday called for political stability amid mounting tensions in the ruling coalition and as the economy recorded its slowest growth in 16 years.
The Central Bank of Sri Lanka warned that the government should press ahead with economic reforms even as the coalition lost its two thirds majority necessary to carry out radical statute changes.
“Political stability is essential for sustained growth and development,” the bank said in a statement Wednesday, a week after reporting that last year’s growth had slowed to 3.1 percent, the slowest since 2001.
The statement came a day after President Maithripala Sirisena reinstated his justice minister, Wijeyadasa Rajapakshe, who was sacked nine months ago for publicly criticising a billion-dollar deal to lease a loss-making harbour to China.
Sixteen members of Sirisena’s faction walked out of the government last month taking away the coalition’s two thirds majority in the 225-member parliament.
Sources in the coalition have said that Sirisena was partly behind last month’s abortive bid to impeach Prime Minister Ranil Wickremesinghe. The move deepened rifts between them.
The cracks came out into the open with the April 4 no-confidence move against Wickremesinghe and have raised fears for the government’s economic and constitutional reform agenda.
Squabbling within the coalition has put the brakes on a plan to remove subsidies on electricity and fuel in a bid to contain the huge budget.
The central bank warned that the government must press ahead with its reform agenda to retain foreign investor confidence.
The bank noted that it raised $2.5 billion through a sovereign bond issue last month making it the largest single bond sale by the government.
“It is imperative to build on the international goodwill and support from international financiers who have invested upon this by persisting with sound macroeconomic policies…,” the bank said.
The government should also accelerate structural reforms to strengthen markets, improve the investment climate, boost investment promotion and introduce trade facilitation, it added.
Sri Lanka secured a $1.5 billion 36-month bailout from the International Monetary Fund in June 2016 following a balance of payments crisis. Since then the economy has been on the mend despite slower than expected growth.