BUSINESS SENTIMENT
CONFIDENCE AT A 10 YEAR HIGH
The index soars for the fourth consecutive month as economic indicators strengthen
Recent upgrades by international rating agencies and healthy economic indicators have ignited a wave of optimism about biz prospects. Moody’s Ratings upgraded Sri Lanka’s long-term foreign currency issuer rating from ‘Ca’ to ‘Caa1’ with a stable outlook, after creditors approved the country’s US$ 12.55 billion debt restructuring plan.
The credit rating agency stated that the upgrade reflects the completion of the restructuring of international bonds held by private sector creditors, which reduces the default risk on new and future issuances.
Meanwhile, Fitch Ratings also upgraded Sri Lanka’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘CCC+’ from ‘RD’ (Restricted Default), reflecting the reduced risk of another default on local currency debt, following the completion of the international sovereign bond restructuring and an improved outlook for macroeconomic indicators.
Moreover, the Governor of the Central Bank of Sri Lanka Dr. Nandalal Weerasinghe announced that the country will prioritise a stronger recovery this year, following five percent real GDP growth in 2024 – the highest in seven years.
THE INDEX In January, the LMD-PEPPERCUBE Business Confidence Index (BCI) surged by 24 basis points to reach 198 (i.e. up from 174 in the month prior). This marks its highest point since January 2015, following the presidential election that led to the formation of the yahapalanaya (good governance) administration.
The BCI is now approaching its all-time high of 204, recorded in September 2015 – also in the aftermath of a (general) election and formation of a coalition government.
Ironies aside, the index now stands 75 points above its historical median of 123 and is 79 points higher than its 12 month average of 119. For context, the BCI stood at 82 basis points at the same time last year.
PepperCube Consultants notes that improved foreign exchange reserves and healthier trade balances, marked by reduced currency volatility and increased export activity, have boosted sentiment.
SENSITIVITIES There are high hopes of relief for both the people and businesses when Budget 2025 is presented in the second half of February – and therefore, we could see the BCI eclipse its all-time high ahead of the presentation next month.
Thereafter, the index’s trajectory will depend on how corporates perceive the budget and of course, whether the government’s election promises are likely to be fulfilled.
There’s also the million dollar question about whether the IMF instigated economic framework will continue to rule the roost.
PROJECTIONS The outcomes of the budget and how they will impact the business community will be key to driving the index in one direction or the other in the near term.
In addition, the prospect of local government elections also looms on the horizon.
As a result, the coming months are likely to be characterised by a mix of uncertainty and speculation – though there’s potential for the pendulum to swing past the BCI’s all-time high – and possibly settle thereafter.
