Political Risk Analysis - Rising Religious Violence Poses Downside Risk To Growth Outlook - SEPT 2017

BMI View: There has been an increase in occurrence of religious violence in Sri Lanka, and we believe that the government ' s inaction could further embolden perpetrators and aggravate religious tensions in the country. Should the situation worsen over the coming months, we would look to downgrade the country's short-term political risk score (which currently stands at a mediocre 70.0) and potentially its economic growth outlook.

There have been more than 40 reported episodes of religious violence in Sri Lanka by the Sinhalese Buddhist majority against both Muslim and Christian minorities since the start of the year, with more than 20 cases targeting Muslim-owned businesses and places of worship between April and June alone. While religious violence is nothing new in Sri Lanka, as these types of sporadic attacks targeting the Sri Lankan Muslim community have been occurring for the past several years, the government's continued muted response is a cause for concern. The recent attacks against Muslims seemed like they were deliberately planned and executed by a small group of people rather than committed by the larger community. This is particularly concerning as the government and police's inaction has likely bred a culture of impunity among perpetuators which has led to repeated offences and a pick up in the number of violations. Currently, Sri Lanka scores a middling 70.0 out of 100 in our short-term political risk index score, weighed down chiefly by the 'security and external threats' component. However, should the situation in Sri Lanka worsens, we would look to downgrade the country's political score and potentially its economic growth outlook, particularly if such violence insinuates wider ethno-religious tensions which threaten social stability.

Sri Lanka Holds A Middling Position
Asia - Short-Term Political Risk Index Score, Out Of 100

Religious Violence Continues To Loom

Undercurrents of anti-Muslim and anti-Christian sentiment among the larger Buddhist community have existed in the country for years. Some of the notable examples of the animosity between ethnic groups include the 2012 attack on a mosque in Dambulla by a large mob which claimed that the mosque had been illegally constructed on sacred Buddhist land, and the anti-Muslim riot in Aluthgama in 2014 - widely attributed to Sinhalese Buddhist nationalist organisation Bodu Bala Sena (BBS) - that left at least four dead, 80 injured, and 10,000 people displaced. Meanwhile, according to data compiled by the National Christian Evangelical Association of Sri Lanka, there were over 900 reports of discrimination and violence against Christians between 1994 and 2014, as well as 190 incidents of religious violence against churches, clergy, and Christians since 2015.

Although President Maithripala Sirisena came to power in January 2015 vowing to investigate and clamp down on religious hate crimes, reports of multiple incidents of ethno-religious violence across the country in recent months show that it remains a widespread problem. It also appears that the frequency of these violations has picked up in recent weeks with over 20 cases of anti-Muslim hate crimes reported since April 17, including arson at Muslim-owned businesses and petrol-bomb attacks on mosques. Despite evidence being documented and submitted by victims and bystanders to the authorities, little has been done by the police to arrest those behind the attacks.

Sinhalese Buddhists Make Up The Majority Of Population
Sri Lanka - Population Breakdown By Religion, %
BMI, Sri Lanka Statistics

Inaction Likely To Continue As Government Is In A Delicate Position

In our view, this inaction is likely to continue because the government jointly led by President Sirisena and Prime Minister (PM) Ranil Wickremsinghe is politically on a back foot. There are political differences between the United National Party ([UNP] which the PM is at the helm of) and the Sri Lanka Freedom Party ([SLFP] which President Sirisena chairs) which forms the ruling coalition, and this has limited the effectiveness of the government and posed challenges in policy making and enactment of reforms ( see ' Increasingly Fragile Coalitio n Will Struggle To Enact Reform', May 2 2017). Moreover, the joint opposition led by former president Mahinda Rajakpaksa (also from the SLFP) has been trying to exploit Buddhist nationalist sentiment in order to undermine the government. Given that the previous administration under Rajapaksa was the first to embrace the Sinhalese Buddhist nationalist ideology and the BBS back in 2005, and the nationalist group retains the ability to rally massive crowds, this has likely forced the government to have to adopt a more accommodative stance towards these radical Buddhists to avoid losing their support to the opposition. In this context, we believe that the government will continue to delay taking decisive action against the perpetuators.

Meanwhile, it appears that the government's muted response towards offenders has emboldened hard-line Buddhists in the country as seen by the increase in frequency of these attacks. Although the police reportedly arrested five people in mid-June, only one of the five men arrested is connected to BBS, while many of these transgressions by the radical Buddhist group remain unchecked. Given that the lack of accountability and culture of impunity could give rise to more violence, we see scope for a further escalation of religious tensions over the coming months. If that happens, we will look to downgrade Sri Lanka's short-term political risk score and also to re-examine the country's economic growth outlook given that social stability in the country (after the 26-year civil war between the Sinhalese and Tamil populations that ended in 2009) has been imperative for the country's rapid economic growth in recent years.