Perceived Economic Opportunity Index 2021 [PEOI] Q3: July to September, 2021

This quarter marks the entry in to the second decade of tracking the perception of economic opportunities among the people of Sri Lanka. This unique measurement is based on the calculation of the Perceived Economic Opportunity Index (PEOI) developed by the Foundation of Economic Freedom in Sri Lanka (FEFSL) upon monthly surveys across the nation.

The trend for the last decade is clear. Unfortunately, Sri Lankan people have not had the satisfaction of looking forward to a better tomorrow for most of that time. The post-war euphoria that elevated the positive perceptions died down quickly. In retrospect it becomes apparent that the incumbent government was unable to leverage on the golden opportunity to go beyond the military victory and build a genuine peace among the communities. On the economic front, the debt-fueled construction boom that started in 2010, ended abruptly by 2013. Growth since then has been only moderate. But the series of events starting with the constitutional coup in 2018, the Easter attack in 2019 and the continuing pandemic since 2020 has made matters much worse for Sri Lanka.    

This regular measurement does not provide answers to the question on how perceptions on economic prospects can be improved or what the role of the government or any other stakeholder is in that process. It is for all concerned to study the trends and along with other data available to assess the possible reasons for the movement up and down of the optimisms of our people about their future. That way, it is hoped that necessary action will be taken to give hope to the population; particularly to the young people who seem to be joining the long lines to obtain passports to leave this country.      

1.0          Methodology

The PEOI is calculated based on monthly data collected by PepperCube Consultants on an island-wide random survey of face-to-face interviews among 500 persons. For the third quarter of 2021, the surveys took place from 01 to 31 for July; from 01 to 31 for August and from 01 to 30 for September 2021. Some telephone interviews took place during the lock down periods. This quarterly report, therefore, based on a total survey of 1,500 persons over three months, provides an ongoing commentary on how regular Sri Lankans feel about their economic future at this present moment. It also provides the reader with the ability to compare the current sentiment since July 2011.  

2.0          Presentation of Findings

As always, monthly survey data is presented quarterly. The focus is on perception on economic opportunity. Perceptions on one’s ability to save also on corruption are regularly presented. The survey also tracks perceptions on cost of living, development of the country, media freedom and law and order among others. Selected assessments are reported periodically.

2.1          Perceived Economic Opportunity

The question posed to the respondents is whether they believe their economic opportunities, be it in the workplace or in their business, would increase, stay the same, or diminish in the year ahead.

At the end of the second quarter of 2021 only 7 percent mentioned they expected their economic opportunities to improve in the coming year. But by July this expectation increased to 10 percent and then fell to a mere 2 percent in August and rose to 5 percent by the end of the quarter in September 2021. The 2 percent positive sentiment for August is the lowest for the almost 120 months for which data is available.    

The reasons behind this unprecedented fall in optimism had to be the unexpected and extremely high death rate of Covid patients. By August, it seemed as if the government had lost control of the pandemic. As shown in this Worldometer graph, confirmed daily deaths in Sri Lanka began to rise rapidly in July and peaked by end August early September at an unprecedented 200+ deaths per day. To deal with the situation, the government imposed a complete 10-day lockdown of the country towards the third quarter of August and the nation came to a standstill. The lockdown was extended and the finally relaxed after many weeks once the daily death rate was controlled with what seemed to be a very successful inoculation. The disruption of the economy due to the pandemic was not the only major worry for people, but the ad-hoc banning of all chemical fertilizer as well as pesticide imports was beginning to have a serious negative impact on agricultural and farming areas. It is possible that the combined impact of these and other negatives made optimism hit rock bottom in August before picking up slightly.        

The end of third quarter level of just 5 percent is a significant fall from August 2020 when 23 percent expected to advance in their job or do better in their business. This was at the beginning of the new term of Parliament with a two-thirds majority to support the policies of the President elected in November 2019.

2.2          What will happen to the development drive?

The below chart is based on a particular question in the survey as to the perception on the progress of development activity in the coming twelve months.

The period of two years is depicted here to indicate the movement of perception towards the presidential and parliamentary elections and thereafter. The negative perception of stopping or slowing down development projects fell dramatically with the change of presidency in November 2019 but went up with the pandemic and again fell dramatically with the parliamentary elections. But thereafter the negative sentiment rose and has reached beyond 60 percent as at the end of September 2021. Inversely the positive sentiment of expeditious implementation of development projects has fallen to below 10 percent.     

This data clearly suggests that the people of Sri Lanka are pessimistic about the ability of the government to implement the various promised development projects. While having an obvious positive correlation with the lack of individual optimism the gap between the positive and negative thoughts is extremely wide pointing towards the need for some very significant event or series of events necessary to reverse the trend.   

2.2          Perception on Ability to Save

Here our objective is to determine the perceptions on the ability to save; an inadvertent way to estimate cost of living as well.

To assess the ability to manage the cost of living and to have something left over, we asked the respondents about their personal savings in the coming 12 months. The perception of the public’s ability to save a ‘little more’ than what they do at present fell in January 2021 to an almost 9-year low of just 1 percent but picked up to 10 by March reflecting the optimism seen earlier. However, that momentum was not sustained. It fell to 4 percent by June. By July again it picked up to 10 percent but fell again to 2 percent in August and picked up slightly to 4 percent at the end of September 2021.

The lack of hope in their ability to save is a most unfortunate reality in the current context of Sri Lanka. Unless the economy turns around and opportunities for individuals to improve their economic well-being it is impossible to expect a turnaround in this situation. Given the ability to save is directly connected to the future of any household these findings are most significant and must be taken with all seriousness by the government.   

2.3          Perception on Corruption

The question posed is if the respondents perceive that corruption will lessen in the coming year.

The positive sentiments among the people that corruption will become less fell from 13 percent at end June to 10 percent by end September. That is a drastic decline from the 64 percent recorded September 2020 with the installation of the new government; the highest since we started measuring this variable. This fall in confidence on corruption at such a rapid pace is a serious concern.

3.0          Concluding Thoughts

The positive feeling about the future that was seen with the election of President Gotabaya Rajapaksa in November 2019 fell somewhat soon thereafter and got worse with the onset of the Covid19 pandemic. Then again hope for better days rose with President Rajapaksa’s party winning the general election with the installation of former President Mahinda Rajapaksa as Prime Minister in August 2020 in the middle of the unprecedented disruption of the economy due to the Covid19 pandemic lock-down.

But just over a year after the parliamentary election that optimism has all but disappeared. In fact, August 2021 was the worst since the monthly measurement began in July 2011 with the raging pandemic causing unprecedented deaths in Sri Lanka. Hope began to appear once again, even though slightly, with the rapid and island-wide inoculation drive.   

This fourth quarter will be a major test for the authorities. While the pandemic seems to be under control other challenges are emerging. This is both in terms of the fall in agricultural and planation crops due to the lack of fertilizer upon the decision to ban all imported fertilizer on the one hand and the deepening economic crisis. Foreign reserves are falling and unavailability of foreign exchange to import even necessities are creating havoc. Lines are forming outside supermarkets to purchase essentials such as milk good and LP gas; a sight not seen in years. How the government addresses these issues will determine the mood of the long-suffering people of Sri Lanka.