Business sentiment continues its upward trajectory despite the prevailing economic uncertainty

At a recent webinar, the Institute of Policy Studies of Sri Lanka’s (IPS) Executive Director Dr. Dushni Weerakoon noted that a V-shaped recovery seems to be on the cards for the Sri Lankan economy, following the 3.2 percent contraction recorded last year.

With a growth rate of four percent this year, she noted that the economy would return to its pre-pandemic level of output, partially as a result of the “relatively weak output growth” in the years leading up to the onset of COVID-19.

Weerakoon emphasised that the challenge Sri Lanka faces is boosting growth to between five and six percent, and maintaining this in the medium term.

Commenting on the upcoming national budget, Weerakoon pointed out that one of the main questions for the government would be how tight it could be from a political perspective.

With a policy framework that considers adjustments on the fiscal front – such as strengthening revenue mobilisation and improving the efficiency of existing expenditure – and improved access to capital markets, she believes that a more robust environment will be pursued to support investment and sustain the economic recovery.

As Sri Lanka sees progress on the healthcare front with reports of new COVID-19 cases and fatalities declining in recent weeks, and with the Budget 2022 proposals on the horizon, the latest LMD-NielsenIQ Business Confidence Index (BCI) survey indicates that sentiment in corporate circles continues to improve.

THE INDEX The BCI’s upward trajectory continued in October, registering an increase of seven basis points to 111 – which represents a five month high.

However, the index is four points shy of where it stood a year ago although it’s six points higher than the 12 month average – for the first time since April.

Elaborating on the latest survey outcome, NielsenIQ’s Director – Consumer Insights Therica Miyanadeniya says: “With the vaccination drive in the country now being open to those under 30 and more than 85 percent of the over 20 age group being double vaccinated, Sri Lanka could well be on the road to controlling the spread of the virus.”

SENSITIVITIES In her assessment of the future trajectory of the BCI, Miyanadeniya states: “The pandemic is abating but its short and long-term effects are beginning to be felt, with shortages and escalating prices.”

“While both the BCI and Consumer Confidence Index (CCI) improved with the pandemic being brought under control, we’ll have to wait and see whether the focus shifts to other adverse happenings in the country.”

PROJECTIONS In the October edition of LMD, we alluded to the escalating economic uncertainty, and “fears of shortages of items such as food and fuel.”

While thankfully, these concerns have abated, the recent price hikes of many essential items together with the prospect of more to come – especially on the fuel front – may undermine biz confidence in the near term.

How the business community views the forthcoming budget proposals will also be crucial along with the positives associated with an easing of lockdown restrictions.