UNIQUE INDEX CLIMBS TO THE SUMMIT

Biz confidence nudges up to match its all-time high amid multiple uncertainties

The IMF has stated that approval of the fourth tranche of Sri Lanka’s Extended Fund Facility (EFF) is contingent upon the implementation of prior actions by local authorities. This includes recently tabled of Budget 2025, which must align with the parameters set under the programme, it maintains.

Former Deputy Governor of the Central Bank of Sri Lanka Dr. W. A. Wijewardena believes that the government faces constraints due to its agreement with the International Monetary Fund and the benchmarks set by the Economic Transformation Act, and this year’s targeted revenue of 15.1 percent of GDP may therefore be hard to achieve.

Additionally, Sri Lanka’s official reserve assets edged down by 0.9 percent in January compared to the previous month. According to the Central Bank, total reserves stood at US$ 6.06 billion at the end of the month with the dip mainly driven by diminishing foreign exchange reserves.

THE INDEX The LMD-PEPPERCUBE Business Confidence Index (BCI) reached its all-time high in February, by climbing six basis points to 204, from 198 in the previous month.

This is its highest level since September 2015 when the index recorded the same score – i.e. in the aftermath of a general election and the formation of a coalition government.

Currently, the index stands 81 points above its historical median (123) and is 75 points higher than the 12 month average of 129. For context, the BCI registered 81 basis points at the same time last year.

PepperCube Consultants says the February BCI reflects a narrowing gap between economic expectations and business performance, driven by rising confidence and stronger sales projections.

However, it notes that for optimism to translate into long-term stability, critical concerns such as taxation, inflation and government inefficiencies must be addressed. PepperCube emphasises that businesses seek robust economic and fiscal policies to ensure sustainable growth to hedge against future uncertainties.

SENSITIVITIES The million dollar question is whether the index will surpass its all-time high, particularly in the aftermath of Budget 2025 and how corporates view the recently installed administration’s fiscal plans presented on 17 February.

The other pressing question is whether the IMF driven economic framework will continue to take centre stage.

PROJECTIONS At the very core of concerns that could surface in the months ahead is how the government fulfils its election promises and whether we see real progress on the anticorruption front.

Questions will also surely be raised about the shortages of essentials such rice, salt and coconuts, not to mention the cost of such staples.

The sudden islandwide power outage on 9 February – allegedly caused by monkey squabbles and widely ridiculed on international media platforms – is another factor that could influence the investor community, in the near term at least.

So the coming months are likely to be marked by speculation and uncertainty, which may mean that the BCI is unlikely to surpass its all-time high.

– LMD