Business and consumer sentiment are also expected to improve as spending decisions were being delayed in light of the elections. With a clear majority for Gotabaya Rajapaksa we can expect a more vibrant business and consumer sentiment to trickle down to the overall economy which should have a positive impact on economic growth in 2020.
Next steps for the country
The presidential election is one of two electoral processes that are now complete and the next step is the upcoming parliamentary elections. The President has the power to dissolve parliament six months before its tenure ends in August 2020. Hence, we expect Gotabaya Rajapaksa will dissolve parliament in February 2020 and call for parliamentary elections in March 2020. As political momentum is now with the SLPP it would not be surprising to see it gain a majority in parliament as well, which would be another big positive for Sri Lanka.
With the incumbent government having a weaker than expected show in the presidential elections it is unlikely they would support a call for early elections before March 2020. Hence, the SLPP will form a minority government at present with Mahinda Rajapaksa expected to be sworn in as the new Prime Minister of Sri Lanka.
Weak business and stock market sentiment have been an issue for Sri Lanka over the past few years, but this election result can be a major positive turning point for the country. With expectations of one power centre in both the President’s and Prime Minister’s Office, and a high probability to the end of coalition politics, Sri Lanka looks like an attractive story with a three to five year view as attractive valuations, stable policy making and a recovery in economic and earnings growth can all propel the Colombo All Share Index to higher levels. However, investors will also continue to watch the country’s fiscal deficit and debt levels as they are expected to stay at elevated levels of 5.7% and 83% of 2019 GDP respectively as per IMF estimates. Any measures to bring this number down will be viewed positively by investors.