INDEX SPIKES TO A 12 MONTH HIGH
Biz confidence shores up in the aftermath of the IMF’s facility being approved
The IMF’s US$ 3 billion Extended Fund Facility (EFF), which was approved on 20 March, has surely been instrumental in bolstering business confidence. And efforts to restructure Sri Lanka’s mountain of debt has since taken a positive turn with three key sovereign creditors – India, Japan and the Paris Club of nations – announcing on 13 April that formal talks are underway.
So the only spoke in the wheel in the context of the debt restructuring process at the time of going to press is China’s reluctance to fall in line with what Sri Lanka is seeking. That China happens to be the island’s largest bilateral creditor cannot be ignored, it has to be said.
Nevertheless, the hype surrounding the long awaited IMF facility – in business circles at least – has translated into sending the LMD-NielsenIQ Business Confidence Index (BCI) skywards, even if the barometer has yet to reach its point of a year ago (116 basis points) as well as the all-time average of 124.
THE INDEX In the first week of April, NielsenIQ’s pollsters reported that the unique index had risen to a 12 month high.
As for the icing on the cake, it comes in the form of the 36 basis point spike in the BCI – the highest increase since January 2021, following news that Sri Lanka was to receive its first consignment of COVID-19 vaccines.
SENSITIVITIES At the top of the list of sensitivities may well be the outcome of debt restructuring negotiations – and most importantly, whether local debt will also come into the equation as this could undermine confidence not only among the business community but the people as well.
The never ending uncertainly that surrounds the local government (LG) polls – not to mention what the political landscape portends in the months ahead – will also hold sway as far as more gains on the biz confidence front are concerned.
PROJECTIONS While we revel in the knowledge of a notable uptick in business sentiment, it would be prudent to keep an eye on the watch list – for example, whether the brain drain will gradually subside and fuel quotes be relaxed further; and crucially, where any relief will come from, to ease the big squeeze on disposable incomes.
As we report in this edition of LMD, consumer confidence is eroding because of shrinking disposable incomes. “An improvement in consumer confidence will depend on how the pockets of consumers are going to be affected by the fluctuating prices of essentials and other goods,” asserts NielsenIQ’s Director – Consumer Insights Therica Miyanadeniya.
That said, Miyanadeniya expects business confidence to remain strong: “With the country slowly beginning to pick up once again and as socioeconomic indicators continue to improve, it is expected that the BCI will continue to gain ground.”
If we were to bet on the future direction of the index, the confidence boost from the EFF and news that as many as seven major state owned entities (SOEs) are under consideration for divestiture may have the gumption that is needed to maintain the momentum of the last two months.