At best, there’s been a lull in the psyche of businesspeople; as a worst case, the time to take stock following the IMF’s US$ 3 billion Extended Fund Facility (EFF) approval on 20 March has resulted in a reality check of what Sri Lanka will have to endure in the second half of this year.
Talk of elections (and hence, the prospect of political instability), plans to pursue some form of local debt restructuring, news of more scandals (e.g. X-Press Pearl), intelligence reports of attempts by radical elements to disrupt the relative peace there’s been and a lacklustre investment milieu could well be top of their minds.
Even so, there are some silver linings on the horizon – for example, the gradual downtrend in inflation (against an inflationary base of a year ago, let it be said), a stable currency, the possibility of electricity tariffs and fuel prices coming down, and the promised economic revival in 2024.
In addition, there have been expressions of hope from spokespersons of key institutions like the International Monetary Fund and World Bank in recent weeks, which bode well for both business and investor confidence.
The former’s Director of Asia Pacific Department (APD) Krishna Srinivasan said during a recent visit to our shores that “the IMF is here to help you along the way.”
THE INDEX It is against this backdrop that the LMD-NielsenIQ Business Confidence Index (BCI) shed six basis points in May to register 102, which follows the previous month’s whopping 36 point spike that marked a 12 month high.
If one were to be thankful for small mercies however, the BCI is slightly higher than a year ago (99) and a healthy 22 notches ahead of its average in the last 12 months (80) – but in contrast, as many as 22 points shy of the barometer’s all-time median.
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 come into the equation as this could undermine confidence not only in business circles but among the people as well.
The other aforementioned pros and cons will surely weigh on the minds of the corporate community in the weeks ahead.
PROJECTIONS LMD concluded last month that “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…” And in a sense, this scenario hasn’t changed.
NielsenIQ’s Director – Consumer Insights Therica Miyanadeniya cautions: “It is very evident that the BCI is sensitive to whatever is happening in the country – be it social, political, economic, environmental or otherwise.”
“At this rate, the direction of both the business and consumer confidence indices will depend on ‘what happens next’ – and all we can do is ‘wait and see’,” she adds.
The burning question for the weeks ahead is whether the perceived pros will outweigh the cons – and if they do, we expect the BCI to stand firm and not fall below the psychologically important 100 mark – which is where it hovered for a protracted period between May 2022 and March this year.
-LMD
