Perceived Economic Opportunity Index 2022 [PEOI] Q1: July 01 to September 30, 2022

The Foundation of Economic Freedom in Sri Lanka (FEFSL) presents here a summary of perceptions of the people of Sri Lanka about their own and the nations’ future as at the end of the third quarter of 2022. This forward-looking monthly nation-wide tracking study, reported quarterly, is based on a unique measurement developed by FEFSL. Started in July 2011 this rich dataset can be used by itself or in conjunction with others to analyze and correlate perceptions of Sri Lankan citizens on a range of issues.  

At the end of the second quarter 2002, we reported that “The nation is facing an unprecedented socio-economic-political crisis. The economy is bankrupt. Inflation is soaring. The currency is crashing. Factories are closing. Schools are shut. Markets are running dry. Farmers are unable to cultivate. Fishermen are on stuck on shore. Jobs are disappearing. Banks are auctioning assets of SME entrepreneurs. Five-hour power cuts have become normal. Essentials are in short supply. Fuel queues are kilometers long. There is no cooking gas. Public are facing untold misery.” We said, “It is hoped that necessary action will be taken to build back hope in the population; particularly among the young people who have now come out in their thousands in massive anti-government protests.”       

As is now history, hundreds of thousands of people gathered in Colombo on 9 July and stormed the President’s and PM’s official residences. President Gotabaya Rajapaksa fled the country and resigned on 15 July. PM Wickremesinghe was elected President by members of parliament on 20 July, despite protestors rejecting his leadership as being proxy for Rajapaksas. It is as if to confirm these allegations that President Wickremesinghe has done nothing to hold accountable perpetrators of this human tragedy. Mr. Rajapaksa has since returned and is heavily protected by the government.

Soon after taking Office, President Wickremesinghe used force and evicted the protestors from their make-shift tents in the heart of Colombo. Using the provisions in the draconian ‘Prevention of Terrorism Act’ (PTA) he, as Minister of Defense incarcerated the student leaders without bail for a minimum period of 90 days. In a matter of days, the protest sites were cleared and a sense of normally returned to the nation. The government also found limited amounts of foreign exchange to import fuel and cooking gas (through an emergency loan form the World Bank) reducing the queues and subsequently almost eliminating same by introducing a QR code system to ration fuel per person. However, human rights organizations and civil society groups have and continue to raise the issue of serious rights violations both locally in internationally. At the UN Human Rights Council in Geneva, a tough resolution on Sri Lanka was passed with a large majority calling for action against those who perpetrated ‘economic crimes’ on the people of Sri Lanka. It is in this context the third quarter results are presented herein.

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. Surveys were conducted from 01 to 30 July; from 01 to 31 August and from 01 to 30 September, 2022. This quarterly report is therefore based on a total survey of approximately 1,500 persons over three months and provides an ongoing commentary on how Sri Lankans feel about their economic future at this present moment. It also provides the reader with the ability to compare this 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 and 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. A selected assessment on one of these questions is reported periodically.

 2.1         What will happen to my opportunities at work or in my business?  

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.

Optimism having hit the lowest it has ever been, at just 1.4 percent at the end of March 2022 picked up to 2.3 percent in April and rose to 2.3 percent in May after Ranil Wickremesinghe was appointed the new PM and remained same at 2.4 percent again in June. These numbers suggest that the removal of the sitting PM and replacing the position with the new PM only had a very marginal impact on optimism. By July the optimism that rose marginally to 2.7 percent with the appointment of Mr. Wickremesinghe as the new President and a semblance of normalcy, dropped again as the situation was not seen as improving by August with prices of fuel and utilities rising sharply. However, there was a significant improvement in hope by September with the index moving up to 3.7 percent. The most important event during the month was the announcement that Sri Lanka had reached a Staff Level Agreement with the International Monetary Fund towards a reform plan to restructure Sri Lanka’s debt. While these levels of optimism are at the bottom of the barrel, yet the movements are indicative of the desperate hope of the people of Sri Lanka that there may be some way out of the quagmire the people are stuck in.    

The value of the Sri Lanka Rupee (LKR) that had crashed to 365 to the US dollar by the end of June held at around those rates, dropping only to 370 by end September. While people suffered tremendously with the value of the LKR in freefall the stability came as a huge sigh of relief. The falling currency that caused the shooting up of prices of imported consumption and intermediate goods along with the expansion of the money supply due to massive printing of money by the Central Bank during the Gotabaya Rajapaksa presidency was by this quarter causing havoc in terms of inflation.

Inflation rates at the end of September, 2022

Source: Central Bank of Sri Lanka Weekly Economic Indicators, October 2022

As depicted in the chart above, by end September the year-on-year inflation, at a national level, was at an unprecedented 73.7 percent while in the city of Colombo inflation was at 69.8 percent. Food inflation at the national level was 84.8 percent while in the city it was 94.9 percent. With food becoming unaffordable for many Sri Lankans, stories of malnutrition increasing, particularly among children caused a major debate in Parliament based on several studies by professional organizations. In a two day debate the government attempted to dismiss these findings but the evidence is stacking up on how dramatically poverty is increasing in Sri Lanka.

In our first quarter report in March 2022, when economic indicators seemed stable and the LKR trading at 200 to the USD, we predicted “Now it seems it is only a matter of time before the catastrophe.” And it was. The situation is pathetic, and hope has diminished. The high point of 20.0 percent of optimism soon after Gotabaya Rajapaksa was elected by a huge majority was short lived. The fall was dramatic since late 2020. By end September 2022 Sri Lankan public is in absolute despair.

2.2          How much can I 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 expected personal savings in the coming 12 months. After the perception of the public’s ability to save a ‘little more’ than what they do at present fell to an all-time low of a mere 1.0 percent at the end of the first quarter this figure rose to 2.2 percent in April, to 2.6 percent in May and fell back to 1.6 percent in June.

Then in July the perception climbed to 2.9 percent, in August to 3.6 percent and 4.2 percent in September reflecting the slight up-beat in confidence as reflected in the hope for the future. The below chart depicts this movement during the three months of the third quarter 2022.   

Perhaps a reason for the uptick could be the significant rise in deposit rates for savings. By September 2022, average Fixed Deposit rates had risen to 23 percent from 6 percent a year ago. However, more research needs to be undertaken to establish this fact.

2.3          What about national development projects?

As far as the public is concerned, development projects are dead. This trend from mid-2020 is clear that the perception on the progress of development activity in the coming twelve months is almost nothing. The positive perception of continuing or expediting development projects is at a mere 1.7, 2.5 and 3.0 percent during the three months of the quarter.

The outcome is to be expected. Almost all construction projects are stopped. Half built roads and buildings are becoming more than an eye-soar across the country. Construction sector jobs are fast disappearing.  With interest rates rising to over 36 percent and due amounts for work completed unpaid by the government many small and medium sized construction firms have closed. Forecasts of multilateral and independent analysists is that overall economic growth of Sri Lanka may fall to negative 9.0 percent in 2022; this is a drop of an additional 2.0 percent from the expectation during the middle of 2022. With the economy contacting and the optimism at the very bottom with only a glimmer of hope in the horizon with the ascendency of Ranil Wickremesinghe to the Presidency, the public are at a point of sheer desperation. Given the IMF agreement would call for further reduction of the budget deficit with increasing taxes and reducing expenditure It will be some time before any major development projects can begin, if ever, as pure government projects.

2.4          Will corruption reduce?

The question posed is if the respondents perceive that corruption will lessen in the coming 12 months. It is evident that the hope for reduced corruption post the two elections has by and large evaporated.  

However, in a positive development the confidence level has risen from the mere 1.0 percent at the end of the second quarter to 5.8 percent at the end of the third quarter 2022. This could be a reflection of a much-publicized report of the Auditor general to a Parliamentary oversight committee on irregularities in what would have been the nation’s largest ever single transaction; a USD 1.5 billion coal tender that was cancelled and members of the tender board censured.

3.0          Concluding Thoughts

The positive feeling about the future that was seen when President Gotabaya Rajapaksa was elected by a huge majority in November 2019 has completely disappeared. However, a slight glimmer of hope seems to have set in after the nation’s reigns were taken over by President Ranil Wickremesinghe.

The nation is bankrupt and unless the proposed painful economic reform agenda is successfully implemented Sri Lanka’s creditors will not agree on a debt restructuring program. Without a debt deal Sri Lanka will not be able to stabilize the economy and move towards a medium-term structural adjustment program and kick start its growth engine. Whether the Wickremesinghe-SLPP government can clear this hurdle is a serious question. While the main opposition party has been generally supportive of economic reforms, which has been a major positive for the government in its negotiations with the IMF, it has recently begun to question the practicality of some of the key proposals on increases in taxes and the lack of a strong social safety network. Many of the other opposition parties, trade unions and several civil society groups however are planning to ratchet up their protests.        

Sri Lanka is crumbling. The nation must be saved before it implodes. It is hoped that policy makers will pay heed to the finding of this study in that endeavor.        

The Foundation of Economic Freedom appreciates the generous support by the Friedrich Naumann Foundation for Freedom to undertake this work.