By Shihar Aneez
COLOMBO (Reuters) - Sri Lanka's Prime Minister Ranil Wickremesinghe faces a no- confidence motion on Wednesday that could go down to the wire and lead to political instability in the island nation, even if the government manages to scrape a win.
Wickremesinghe leads a national unity government in alliance with President Maithripala Sirisena's party, which has said it would vote against the prime minister, blaming him for failing to prevent an alleged scam in the bond market.
The opposition, which swept local elections last month, aims to drive a deeper wedge within the ruling coalition with the no-confidence motion and bring forward a national election due in 2020.
"There is common consensus in the party to vote in favour of the no-confidence motion," said Lakshman Yapa Abeywardena, a minister of Sirisena's Sri Lanka Freedom Party (SLFP).
"Clearly the SLFP is of the view that the prime minister should step down."
Wickremesinghe has faced criticism for failing to deliver on economic growth which slumped to 3.1 percent last year, its worst pace since a recession in 2001. The rupee currency is hovering at a record low.
The government is also under pressure as it tries to manage China's expanding infrastructure push in Sri Lanka, located near key shipping lanes in the Indian Ocean, but which has raised fears that it could push the tiny country deep into debt.
Wickremesinghe's United National Party has 107 members in the 225-member parliament and, until now, the support of 42 members of the SLFP, which gave it a comfortable majority.
But if the SLFP votes against the government, Wickremesinghe could lose his majority. He would then need the backing of minority parties in the opposition to stay in office.
Eran Wickramaratne, the junior finance minister, said the UNP had asked for a quick vote "to end any uncertainty people will have in their minds" and hoped for a stronger government to emerge afterwards.
Political instability is weighing on the economy, he said.
"You are not going to get 6-percent-plus kind of growth because of the political issues. We will move into 4-percent-plus in 2018," he told Reuters.
The yields on Sri Lanka’s benchmark bonds have risen 83 basis points since early this year, and the central bank chief has also warned of risks to economic growth from political instability.
POPULISM WILL RISE
Shailesh Kumar, Asian director at consultancy Eurasia group, foresaw limited cooperation between the UNP and the SLFP after the no-confidence motion, even if the prime minister survived.
"This means there will be limited appetite for economic legislation and instead the two will likely indulge in populism to shore up their positions ahead of the 2020 elections," he told Reuters.
Foreign direct investments (FDI) doubled to $1.6 billion (£1.2 billion) last year, but more than 40 percent of that was from China, for two key projects that have dragged on for more than a year.
A trade pact signed with Singapore in January and expected free trade agreements with China and India later this year are seen boosting Sri Lanka's export revenue through new FDIs. But officials of the Board of Investment say investors have been waiting for clarity on the political front.
(Additional reporting by Shihar Aneez; Editing by Raju Gopalakrishnan and Sanjeev Miglani)