Biz confidence makes a comeback – but not without the spectre of lingering concerns

In mid-August, the cabinet approved a proposal to present a Vote on Account (VoA) with the aim of allocating government expenditure for the first quarter of 2020. This move is attributed to the belief that it wouldn’t make sense to introduce a fully fledged budget in the lead up to the presidential election.

A presidential poll is expected to be held in December so the presentation of Budget 2020 would have to be postponed pending the composition of a new cabinet and policies of the next regime.

Consequently, a VoA is expected to be tabled in parliament this year to cover all the expenditure deemed necessary to maintain government during the first four months of 2020. A vote on account was also presented for the first quarter of this year in the wake of the constitutional crisis that beset the nation in October 2018.

But while corporates have voiced concern over political uncertainty in the country, the results of the latest LMD-Nielsen Business Confidence Index (BCI) survey paint a more positive picture – in fact, the increase in the index is the highest since November last year.

THE INDEX The BCI registered a noteworthy improvement of 20 basis points to reach 94 in August, which reflects a six month high. In addition, the barometer of business sentiment is five points above the average for the last 12 months (89) and virtually the same as a year ago (95).

Nielsen’s Managing Director Sharang Pant comments: “There seems to be a wind of positive change blowing across Sri Lanka. Sentiment is improving with both businesspeople and consumers feeling that the worst is behind them and the future has better things in store. This is backed by macro and micro factors, such as export performance, currency stability, inflation and others.”

“When asked for reasons for the improvement in sentiment, businesspeople cite the positive signals provided by the authorities in attracting tourists back to the island. They expect similar initiatives to also bring investments into the country,” he notes.

SENSITIVITIES According to respondents, political uncertainty remains the most daunting issue facing the nation amid the prospect of a presidential election later this year while taxes continue to be the main business concern.

Moreover, the survey results reveal that concern over national security has tapered off compared to the preceding months.

PROJECTIONS In last mon­th’s analysis of the BCI, we noted that barring the introduction of genuine confidence building measures by the powers that be, an improvement in sentiment would fall within the realms of a utopian fantasy! On the other hand, we hoped that sanity would prevail in the light of multiple international travel guides affirming that Sri Lanka is still a ‘must visit’ destination this year.

So while the hike in the index is a welcome sign, much will depend on how the pre-election period pans out… getting carried away by the good news in August therefore, may not be wise given the nation’s track record in the run up to elections of any sort!