Business sentiment continues to improve in the aftermath of the presidential poll

The trade deficit contracted in October on the back of lower expenditure on imports and a marginal drop in export earnings. According to the Central Bank of Sri Lanka, a decline in cumulative expenditure on imports and an increase in export inflows resulted in the deficit contracting to US$ 6.5 billion in the first 10 months of 2019 – compared to 8.9 billion dollars during the corresponding period in the previous year.

Additionally, the Central Bank reports that “the drop in tourist arrivals was contained further in October” with tourism earnings amounting to US$ 2.8 billion in the first 10 months of last year – a 20.7 percent decline year on year compared to the same period in 2018. Workers’ remittances also rose to 607 million dollars although cumulatively, this represents a decline.

Foreign activity in the stock market recorded a net outflow of US$ 10 million in October, which is an improvement from the 36 million dollar outflow witnessed in the prior year.

Meanwhile, the country’s gross official reserves stood at 7.8 billion dollars, which accounts for almost five months of imports.

As for the latest LMD-Nielsen Business Confidence Index (BCI), the uptick in confidence following the outcome of the presidential election is both stark and highly encouraging.

THE INDEX The BCI stood at 186 in December – its highest point since September 2015 – recording an increment of 75 basis points from the previous month.

The barometer therefore, is close to being twice as high as its 12 month average (99), more than double its score of a year ago (90) and within striking distance of the BCI’s all-time high of 204 – which incidentally, marked the formation of the previous coalition government in September 2015.

Elaborating on these developments, Nielsen’s Director – Consumer Insights Therica Miyanadeniya explains: “This unprecedented increase has come in the wake of the new president taking the reins and the policies implemented so far.”

She continues: “The tax concessions, reduction of VAT from 15 percent to eight percent, lower government expenditure as well as other visible changes seem to have endeared the new government to both businesspeople and consumers.”

SENSITIVITIES A survey respondent remarks that “with the new government and president, we hope the business climate will get better in the coming months.”

And it is this very sentiment that’s likely to prop up confidence among both businesspeople and investors in the short term at least.

PROJECTIONS The positivity in the lead-up to the presidential poll has seen the BCI steamroll its way to far higher ground in the wake of several business and investor friendly policy initiatives announced by the newly elected president.

But as Miyanadeniya notes, the direction of the index in the coming months will largely depend on developments leading up to the general election, as well as how the corporate sector perceives the caretaker government’s policies.

To hazard an educated guess, it is unlikely that business confidence will wane in the short term.