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Asian Development Bank Warns of Potential Setback to Sri Lanka’s Recovery Post-Elections

Sri Lanka’s recovery could be stalled by abrupt policy changes after elections later this year even as the economy showed signs of stabilizing, the Asian Development Bank warned Friday.

The island nation weathered an unprecedented financial crisis in 2022 that forced a foreign debt default as well as food and fuel shortages that prompted months of unrest.

It secured a $2.9 billion rescue loan from the International Monetary Fund last year, with President Ranil Wickremesinghe hiking taxes and cutting generous subsidies to restore the government’s ruined finances. But the ADB said presidential polls due by October could weaken the commitment to austerity measures.

“Risks to the outlook tend to the downside,” the bank said in its latest forecast on Sri Lanka’s economy. Among them, the most important is uncertainty associated with the upcoming elections, including any possible impact on fiscal policy and reform implementation.”

Wickremesinghe is seeking re-election and his two principal challengers so far have both opposed his efforts to balance the budget in line with the IMF rescue package.

The ADB also warned that any delay in restructuring Sri Lanka’s external debt could also impact prospects.

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