Everything is inter-connected in this globalized world, as nothing can prevail in isolation, be it economic or political. What the public expects from a democratically-elected government is to create a conducive business environment, more employment opportunities and building public infrastructure, resulting in a better living standard.
Accordingly, it is up to the government to introduce fresh economic policies, so that it can propel the economy to new heights. As whatever a government does directly or indirectly impacts on the economy, its stability is a must for economic development.
Political instability can be seen in three ways. It becomes unstable, when there is a possibility for a government change. Secondly, when there is a political upheaval or violence in a country, such as abductions, assassinations and agitations so and so forth, the nation becomes politically unstable.
For instance, we can recall how unstable the nation was, when it suffered from 30-year conflict. Thirdly, when instability can be seen in policies more than instability in regimes, that nation can also be considered politically unstable.
It is with the local government election results that the present coalition government showcases some signals of political instability, negatively impacting on the economy as well. Central Bank Governor Dr. Indrajit Coomaraswamy at a recently held media briefing called for political stability, warning that prolonged political stalemate could negatively influence market sentiments leading to a reduction in investment and growth.
Since the day election results were released, unanimity among politicians representing the coalition could not be seen, making businessmen confused about the future plans. They actually hesitate to take business decisions, as they are not aware of what kind of business atmosphere will be created in the future. This is the outcome of the instability. Two different political parties holding different opinions are hanging on the two sides of the scale. Hence, decisions cannot be taken at all in business sense.
The Colombo Stock Exchange (CSE) just started recovering gradually, especially with historically high foreign inflows. It is hit by lack of political stability at present. No one is ready to put their money at risk by investing on a market where policies are highly volatile and unpredictable. Therefore, the investors would like to wait and see how things will go on in the future.
Even if the investors were discouraged by instability, they seem to have been motivated by some other reasons specific to some companies. That can be considered an exception to the instability. Nevertheless, when it comes to the long-term market, stability will be the key for market growth.
What could be observed over the years in the Sri Lankan context is that whenever governments changed, development projects were halted, fresh policies were introduced, tax regime changed, ultimately putting the investors at a loss. That’s why the investors are oversensitive to political instability in the country. In a nutshell, for the market to keep the upward trend, the authorities ought to bring in political stability.
What the Sri Lankan voter has always expected by casting his vote is that politicians would create a better living standard for him. This is in fact the most innocent expectation. When one party comes into power and doesn’t fulfil promises, the voters cast their vote for the opposition. Even when that party also does the same, the voters cast their votes for the previous party. This is like a cycle, frequency of which brings political instability.
What we hear from the media is that a cabinet reshuffle is possible in the near future. Changing ministerial portfolios will not resolve the problem, unless the right portfolio will be assigned to the right person with the necessary knowledge and skills.
The good governance government has come on a long way and has almost two years to run. The challenge before them is to create political stability through which economic stability can be achieved for the sake of the nation. They can learn some lessons from the recently held local government poll and make the rest better.
(Amila Muthukutti is an economist)