With the Sri Lanka Podujana Peramuna, the party supported by the Joint Opposition winning the Local Government election, the economic revival programme, initiated the unity government, is likely to suffer.
The consequences of the government's defeat at the LG election range from plummeting stock market prices to difficulties in attracting FDIs for proposed key projects, top government sources said.
According to Wire services, the Colombo stock index ended today 0.45 percent lower at 6,542.99, slipping from its highest close since Nov. 8 hit on Friday. The index gained 0.8 percent last week, its third straight weekly increase.
Shares in conglomerate John Keells Holdings Plc, they said, fell 2 percent, while Sri Lanka Telecom Plc ended 3.8 percent weaker and biggest listed lender Commercial bank of Ceylon Plc lost 1.01 percent.
At the same time, the government's panned action on the fiscal management front will be affected as the LG polls results have exerted pressure on the government to bring about speedy relief measures to address cost of living.
The government will soon face another crucial election at the Provincial Council level and the damage-control measures will have to be implemented within a short period of time.
"The other main issue will be attracting FDIs. An investor will think twice before investing in Sri Lanka as the government has been weakened by the LG polls results. This has send out a message to the business community that the government has only meager chances in 2020. So, the policies will undergo drastic changes when a new government comes to power," a highly-placed Central Bank source added.
"The government is suddenly finding itself in a vicious cycle. To make the government popular, they have to resort to populist measures. But, their avenues of funds have shrunk due to political instability," an economist explained.
