CONFIDENCE AT A FIVE YEAR HIGH

The index skyrockets for a third consecutive month following the election season

The election of a new government has ignited a surge of optimism and speculation about the country’s economic future. Against a backdrop of prolonged economic turbulence, the government’s pledge of change has struck a chord with a business community that’s eager for both stability and growth.

However, the new administration faces pressing challenges that demand swift and decisive action.

While optimism prevails, the path forward is laden with obstacles – and the global economic slowdown and escalating geopolitical tensions present significant external risks.

With external debt surpassing US$ 50 billion, the government faces the daunting task of negotiating favourable terms with creditors while honouring its commitments under the IMF’s bailout package.

Ensuring financial discipline will be vital to rebuilding investor confidence and setting the economy on a stable trajectory.

At the same time, corporates are likely eagerly awaiting the 2025 budget, which is expected to be presented in February. Sri Lanka has committed to completing its foreign debt restructuring by the end of December, aligning with the revenue targets outlined by the International Monetary Fund ahead of the budget – an ambitious undertaking, to say the least.

THE INDEX In December, the LMD-PEPPERCUBE Business Confidence Index (BCI) surged by 20 basis points to reach 174 (i.e. up from 154 in the month prior), marking its highest point since January 2020 – which ironically, followed the November 2019 presidential election – and a high for 2024.

This spike largely reflects businesspeople’s reactions to the recent general election with expectations likely to remain high heading into the first half of 2025. This marks the fourth month that the barometer has crossed into triple digits.

Furthermore, the index now stands 51 points above its historical median of 123 and is 65 points higher than its 12 month average of 109. For context, the BCI stood at 85 basis points at the same time last year and has gained as many as 74 points in the last three months.

PepperCube Consultants notes that sentiment surrounding the economy remains consistent with the results prior to the general election, though optimism about sales volumes in both the short and longer term has improved since then.

SENSITIVITIES How corporates view the upcoming Budget 2025 may well be among the top concerns as we welcome year 2025.

With the election cycle completed and political stability restored, there is potential for the BCI to head towards its all-time high of 204. However, challenges remain and the business community will probably continue to adopt a ‘wait and see’ approach to evaluate whether the promises made by the new regime are likely to be fulfilled.

PROJECTIONS It remains to be seen whether the post-election optimism will persist as the budget approaches. In addition to this, the prospect of local government elections also looms on the horizon.

So the coming months are likely to be marked by both uncertainty and speculation – and the pendulum could swing either way!

– LMD