There are now “two competing power centers” that could see Sri Lanka enter “a constitutional crisis,” said Pratyush Rao, lead analyst for India and South Asia at Control Risks. The Rajapaksa-Sirisena camp are now likely to call for a snap parliamentary election and because Rajapaksa remains a popular figure among Sinhala Buddhists, who account for the majority of the population, he’s likely to fare well, Rao said.
The president’s support has been dwindling so he may be using Rajapaksa to bolster his government, Rao added.
Sri Lanka’s economy is already under duress — foreign exchange reserves have been sliding, pressuring the local currency — amid broader problems in global emerging markets. The latest political turmoil could further weaken international investor confidence.
“Investors will likely view the developments with concern because at best, it will limit the scope for economic policy/reforms, and at worst plunge the country into a prolonged political crisis,” said Shailesh Kumar, South Asia director at Eurasia Group.
Sri Lanka’s parliament has been suspended until 16 November. By that time, Sirisena will have amassed enough support for Rajapaksa to pass a no-confidence vote when one is eventually held, Kumar continued.
Moody’s has already sounded the alarm on the situation.
Rajapaksa being appointed prime minister “significantly heightens policy uncertainty” and could be “credit negative” for Sri Lanka’s sovereign rating, Matthew Circosta, Moody’s analyst, wrote in a note. “Additionally, the possible social tensions that may unfold in the next few weeks would have a negative impact on the economy, which is already growing slowly.”