BUSINESS SENTIMENT
OPTIMISM FADES AS BUDGET LOOMS
The index free falls as budget jitters and lingering pressures weigh on the business psyche
The political spotlight remained firmly on allegations of corruption as fresh arrests and ongoing investigations dominated the headlines in October. The country entered the last quarter of the year with optimism in short supply and familiar burdens still weighing heavily while the public looks to the forthcoming budget for some relief.
On the economic front, the World Bank reported that the economy returned to pre-crisis levels and projected growth of 4.4 percent for 2026. Yet, household incomes and labour market outcomes continued to lag behind the broader rebound, highlighting the gap between national progress and everyday wellbeing.
Further encouragement came from the staff level agreement on the seventh review of the IMF’s Extended Fund Facility (EFF), paving the way for approximately US$ 345 million in financing, subject to executive board approval.
However, official reserve assets declined by 1.1 percent to 6,851 million dollars in September. In the meantime, the Central Bank of Sri Lanka defended its five percent inflation target for the next three years, arguing that it strikes an appropriate balance between price stability and economic growth.
Central Bank Governor Dr. Nandalal Weerasinghe said a lower target may appear preferable from a purchasing power perspective but could constrain growth below the country’s potential and leave more people worse off.
Meanwhile, plans announced by a government official to simplify the tax system from next year offer some prospect of relief. The proposed measures include removing additional levies imposed alongside customs duties to make the tax structure more efficient and user-friendly.
Beyond these domestic policy considerations, the price of oil has added to the uncertainty as threats to production and renewed attacks on Saudi Arabia’s airports heightened supply concerns.
Here at home, rumours of a possible fuel shortage revived memories of a crisis citizens would be anxious to avoid reliving, although the Ceylon Petroleum Corporation (CPC) sought to allay these fears.
THE INDEX Against this backdrop, the LMD-PEPPERCUBE Business Confidence Index (BCI) shed 17 points to register 145 in October, down from 162 in the preceding month.
The barometer is 19 points above its historic median of 126 but sits 13 points below the 12 month average of 158 and well short of the October 2025 all-time high of 212.
According to PepperCube Consultants, taxation, inflation, utility costs and fuel availability continue to weigh on businesses. It notes that sustaining confidence will depend on broader economic stability and measures to ease these pressures.
PROJECTIONS Therefore, October’s decline comes as no surprise amid anxiety over what Budget 2027 will deliver. It follows that the outlook for the remaining two months of the year remains uncertain.
Depending on what the budget offers, confidence could improve next month but any uplift may be insufficient to establish sustained momentum heading into the new year.
Instead, the recent seesaw pattern in sentiment could persist in the near term.
– LMD
