Sri Lanka constitutional crisis

• Both competing prime ministers are likely to work on securing the support of parliamentarians ahead of the scheduled 16 November parliamentary session, which will probably involve a vote of no confidence against Mahinda Rajapaksa, the newly appointed prime minister.
• If the SLFP is able to form government after having demonstrated a parliamentary majority, the UNP will likely challenge Wickremesinghe's initial dismissal at the Supreme Court. If Rajapaksa and the SLFP are unable to demonstrate a majority in parliament, Sirisena would then theoretically be forced into re-appointing Wickremesinghe - a move that the president would probably oppose, thus further deepening the constitutional crisis.
• In either case IHS Markit assesses that early parliamentary elections would be preferred by the SLFP, as this would be perceived as a solution to the crisis but would also present Rajapaksa with an opportunity to capitalize on his public popularity to improve the SLFP-led coalition's parliamentary presence.
• Economic policy-making is likely to remain virtually non-existent during the crisis. More broadly, if the SLFP secures its hold on government - particularly after a decisive parliamentary election - economic policy would increasingly divert away from the UNP's preference for foreign direct investment, privatization, and macroeconomic stabilization.

On 26 October, Sri Lankan President Maithripala Sirisena dismissed Ranil Wickremesinghe as the country's prime minister after the president's Sri Lanka Freedom Party (SLFP)-led alliance withdrew from the ruling coalition with Wickremesinghe's United National Party (UNP)-led block in parliament; within hours of the announcement, Sirisena appointed former president Mahinda Rajapaksa as Sri Lanka's new prime minister. Sirisena justified his decision to remove Wickremesinghe during a speech on 28 October, citing large-scale government corruption by UNP leaders and economic mismanagement. Sirisena also claimed that the UNP had blocked efforts to investigate a plot to assassinate him and even alluded to accusations that a senior unnamed UNP minister was directly involved in the conspiracy.

Although Rajapaksa has begun preparations to assume the prime minister's role, Wickremesinghe insists that he remains prime minister, with senior UNP ministers describing Sirisena's decision to dismiss the prime minister as unconstitutional. The UNP claims to hold a majority in parliament despite the SLFP-led coalition's withdrawal from government, but Sirisena has delayed any parliamentary sitting until 16 November in a probable attempt to buy time for Rajapaksa to secure the support of parliamentarians. Wickremesinghe has also refused to vacate the prime minister's residence, while other senior UNP cabinet members have continued to report at their respective ministries in Colombo amid protests by pro-SLFP supporters. On 28 October, one protester was shot dead and two others wounded when a UNP minister's personal guard shot at a pro-SLFP crowd at the Ceylon Petroleum Corporation office in Dematagoda.

Broken alliance

The developments on 26 October represent a fundamental and rapid shift in Sri Lanka's political alliances. Since the 2015 presidential and parliamentary elections, the UNP and the SLFP - traditionally political rivals - had worked together in government on a platform of improving governance and countering corruption. The alliance was held together by the working relationship between Sirisena and Wickremesinghe, who shared a political adversary in Rajapaksa. Their initial alliance first led to Rajapaksa's surprise presidential election defeat in 2015; Sirisena at the time had defected from the SLFP to contest the election against Rajapaksa before returning to lead the party. The coalition government nevertheless has proved to be intermittently productive, passing landmark constitutional reforms that diluted the powers of the president in 2015 and major tax reform legislation in 2017.

However, Sirisena and Wickremesinghe's relationship subsequently deteriorated significantly and the two increasingly engaged in public disputes, particularly over economic policy and the direction of government anti-corruption campaigns (see Sri Lanka: 26 January 2017: Sri Lankan president's probe into central bank bond-rigging allegations likely to deepen divisions in coalition government). Meanwhile, Rajapaksa continued to build political momentum through his leadership of an opposition bloc in parliament consisting mainly of SLFP dissenters that refused to form a government with the UNP. In February, a new party formed by Rajapaksa swept nationwide local elections, further increasing pressure on the UNP-SLFP coalition.

Outlook and implications

The competing claims for the prime minister's office and the unclear legality of Wickremesinghe's removal have effectively triggered a constitutional crisis in the country, which is likely to extend into 2019. The two parties' numerical support in the 225-member parliament will be crucial: according to the Sri Lankan parliament's official website, the UNP-led alliance holds a greater number of seats (106) than the SLFP-led alliance (95). With the support of Tamil parties that have 12 seats and have traditionally opposed the SLFP, this would suggest that any no-confidence motion against Rajapaksa would succeed. However, the declining public popularity of Wickremesinghe's economic policy - which has led to high inflation, a deprecating currency, and increasing living costs - will probably encourage non-aligned parties to abstain and thus allow the motion to fail. Crucially, it is highly unlikely that Sirisena would have appointed Rajapaksa without confidence that he could demonstrate a majority in parliament.

If the SLFP is able to form government after having demonstrated a parliamentary majority, the UNP will likely challenge Wickremesinghe's initial dismissal at the Supreme Court. If Rajapaksa and the SLFP are unable to demonstrate a majority in parliament, Sirisena would then theoretically be forced into re-appointing Wickremesinghe - a move that the president would probably oppose, thus further deepening the constitutional crisis. In either case IHS Markit assesses that early parliamentary elections would be preferred by the SLFP, as this would be perceived a solution to the crisis but would also present Rajapaksa with an opportunity to capitalize on his public popularity to improve the SLFP-led coalition's parliamentary presence.

Economic policy-making is likely to remain virtually non-existent during this period of the crisis. The budget for 2019 was due to be presented in parliament on 5 November, but is now unlikely to be debated until early 2019. According to local media reports, a smaller budget to ensure the day-to-day functioning of government will be presented for the first three months of 2019 instead.

More broadly, if the SLFP secures its hold on government - particularly after a decisive parliamentary election - economic policy would increasingly divert away from the UNP's preference for foreign direct investment (particularly from India), privatization, and macroeconomic stabilization. During its previous tenures in power, the SLFP instead focused on increasing government subsidies - particularly fuel - and protecting local industries, which would indicate an increase in government expenditure. This in turn would threaten to further increase the budget deficit, which rose to 5.3% in fiscal year 2018 and thus exceeded the government's expectation of 4.8%, according to the central bank. Moreover, it is likely that an SLFP-led government would additionally seek to initiate anti-corruption investigations against UNP leaders while also scrutinizing contracts that were agreed under the coalition government.

In the meantime, the UNP is likely to increasingly press Sirisena to convene a parliamentary session as soon as possible, including through street protests. Protests are likely in the administrative capital Sri Jayawardenepura Kotte, southeast of Colombo, particularly around ministry buildings; protests involving up to hundreds of people are also likely central Colombo. However, despite the killing of protesters on 28 October no other major incidents of violence have occurred, indicating that security forces have to date remained neutral. Nonetheless, protests are likely to intensify if the crisis draws on and Sirisena is increasingly perceived to be blocking the UNP from power. In this scenario, the political alignment of security forces would be key to the manner in which protests are quelled; the military in particular is likely to be key to this issue, as it has historically supported the SLFP.