CONFIDENCE AT A NINE MONTH HIGH

Biz sentiment holds amid the rubble of multiple crises and a state of paralysis

In a telltale sign of policy vacillation, the Central Bank of Sri Lanka hiked its policy rates by 50 basis points (to 6.5%) on 20 January to contain the nation’s balance of payments crisis and runaway inflation (14%).

“The Monetary Board was of the view that the above measures will curtail the possible buildup of underlying demand pressures in the economy, which would also help ease pressures in the external sector, thus promoting greater macroeconomic stability,” the Central Bank maintained.

It added that “in keeping with this policy stance, the Central Bank expects a corresponding increase in interest rates, particularly in deposit rates, thereby encouraging savings while discouraging excessive consumption, which also fuels imports.”

That the nation is perched on a slippery slope isn’t in question…

As in the previous month however, and despite the bleak outlook, the outcome of the latest LMD-Nielsen Business Confidence Index (BCI) survey paints an ever so slightly more positive picture – so much so that the index is now at a nine month high.

THE INDEX The BCI nudged upwards by three basis points from the previous month to register 122 in January. The index stands at where is stood a year ago and is a healthy 14 points above its 12 month average of 108.

For the sake comparison, the unique barometer of biz sentiment plummeted from 145 to 93 back in April 2020 when Sri Lanka’s ‘COVID-19 run’ took off; and it has hovered at around the 90 mark when the second and third waves of the pandemic led to lockdowns and ‘travel restrictions.’

So in that sense at least, the silver lining is in the relative quiet on the Omicron front although ominous warnings have been forthcoming from numerous authorities that the threat of another bout is ever-present.

Meanwhile, NielsenIQ’s Director – Consumer Insights Therica Miyanadeniya points out that “while the business confidence index has increased slightly, this sentiment isn’t shared by the general public as the Consumer Confidence Index (CCI) has dropped to an all-time low of 25.”

And as she notes, “inflation and shortages of key commodities still persist.”

SENSITIVITIES Abounding sensitivities are the order of the day, given the mounting forex crisis and its impact on a multitude of daily essentials – including fuel.

Beyond the suffering masses, there’s an increasingly edgy tourism industry as key source markets such as Europe grapple with a rapidly spreading Omicron variant.

PROJECTIONS In the January edition of LMD, we asserted that “the direction of the BCI is likely to hinge on how the government plans to avert a state of economic failure.”

Miyanadeniya attributes the slight improvement in sentiment to “businesses formulating new strategies to salvage and improve on whatever has been lost due to the pandemic in 2021.”

The business community may well be taking a longer-term view but it has to be said that until there’s a revival of Sri Lanka’s economy and an easing of the restrictions that the forex crisis has necessitated, there’s a limit to what degree such resilience can hold.

– LMD