Key Takeaways:
Anura Kumara Dissanayake, leader of the Marxist JVP, was sworn in as Sri Lanka's new President on 23 Sept, reflecting public demand for economic reforms amid a severe economic crisis.
Dissanayak’s JVP has historically been anti-India, and now plans to revoke India’s Adani Group project in favour of energy sovereignty and is likely to align with China, receiving strong support from Beijing to strengthen bilateral ties.
KSG assesses that increased Chinese influence in Sri Lanka through infrastructure projects like Colombo and Hambantota ports could expand China's economic control and maritime presence, challenging regional security and India's position in the Indo-Pacific.
The Belt and Road Initiative in Sri Lanka is likely to accelerate under Dissanayake, deepening China's foothold in South Asia and undermining Indo-U.S. strategies aimed at countering Chinese dominance through investment and cooperation in the region.
Western investment in Sri Lanka is likely to face greater challenges following these results.
Overview
On 23 September, Anura Kumara Dissanayake, leader of the marxist Janatha Vimukthi Peramuna (JVP) party, was sworn in as the new President of Sri Lanka. Dissanyake was declared winner of the Presidential Elections on Sunday night after voting was taken to a historic second count of votes for the first time in Sri Lankan history. Originally, he had 42.31% of the vote, and the opposition leader, Sajith Premadasa took second place with 32.76% of the vote, neither making it to the 50% threshold on 21 September, the day of elections.
Outgoing President Wickremesinghe, with notably pro-Indian economic policies, took third place with 17.27% of the votes. This highlights a key shift in the Sri Lankan demographic, signifying that the populace demand economic growth and significant economic policy changes to address their economic crisis, which began with the 2022 Aragalaya uprising. The Sri Lankan foreign currency reserves were depleted, ceasing the import of essentials like fuel and public debt had sky-rocketed to $83 billion. Inflation was up 70%, and real GDP growth stood at -7.8%. Food and medicine were unaffordable, creating resentment of Wickremesinghe’s policies and calling for significant reform.
Dissanayake: Anti-India and Pro-China
The Indian High Commissioner to Sri Lanka was the first ambassador to meet Dissanayake on Sunday night, with Modi congratulating Dissanayake via X. Both leaders reaffirmed their commitment to strengthening Indo-Sri Lankan ties, and the US also reaffirmed their commitment to promote security and economic growth in Sri Lanka on 22 September.
However, Dissanayake’s JVP, part of the National People’s Power movement, is a marxist-leaning party and has historically had an anti-India rhetoric. During his presidential campaign, Dissanayake declared his intention to revoke the agreement between Sri Lanka and India's Adani Group, regarding a 484-megawatt wind power project in Sri Lanka's conflict-affected regions, to preserve their energy sovereignty. After Dissanyake was sworn in, President Xi Jinping sent a congratulatory message to Dissanayake, emphasising his desire to further strengthen Sino-Sri Lankan bilateral relations, especially through Belt and Road Cooperation.
Forward Look
KSG assesses that an ideological alignment with the Chinese Communist Party (CCP), along with Sri Lanka’s $7 billion debt to China is highly likely to bolster Chinese influence and investment in Sri Lanka as the JVP looks to clear foreign debt and climb out of economic crisis.
A demand for direct foreign investment in Sri Lanka is highly likely in the short-term, with the provision of cheap labour from a population in an economic crisis. Dissanayake has emphasised a focus on tech and energy for economic growth, providing bigger tech companies an opportunity to invest. KSG assesses that these opportunities are likely to remain open to Western companies, but they will come up against fiercely government-backed Chinese competition, with a local government under Chinese influence.
KSG assesses that Chinese influence across the Indo-Pacific is set to grow in the next 5 years as BRI projects are highly likely to develop Sri Lankan infrastructure. Colombo and Hambantota are key ports in global shipping networks. Having a key stake in Sri Lankan infrastructure could generate significant influence in the Indo-pacific region, regarding both economic control and maritime security.
A BRI-leaning party will likely put current Indo-US influence in Sri Lanka at risk, despite their joint infrastructure investments in Sri Lanka, like the expansion of three airports, including significant loans for the Colombo West International Terminal.
The expansion of the BRI in Sri Lanka could strengthen China's ties with India's neighbouring countries, such as Pakistan and Bangladesh—both heavily indebted to China—as well as Nepal, thereby bolstering Chinese influence and control across South Asia. This poses a direct challenge to India’s strategic position in the region. KSG assesses that this development is likely to escalate regional tensions in South Asia. Moreover, it could undermine the dual India-U.S. strategy of fostering investment and economic cooperation with India's neighbours, designed to counterbalance China's growing influence (note: KSG will release an in-depth report on this counterbalance strategy in late September).