Perceived Economic Opportunity Index [PEOI] 2023 Q2: April 01 to June 30, 2023

We said at the end of the first quarter of 2023 that a distant glimmer of hope had appeared. It continues to shine at the end of the second quarter of 2023 but is flickering.  

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 second quarter of 2023. Started in July 2011, this forward-looking nation-wide tracking study, conducted monthly and reported quarterly, is based on a set of questions and answers developed by FEFSL to measure the mood of the people of Sri Lanka on their perceived opportunities into the future.

In concluding our first quarter 2023 report, we said “The optimism about the future that was seen when President Gotabaya Rajapaksa was elected by a huge majority in November 2019 disappeared as he and his government floundered and bankrupted Sri Lanka for the first time in history. After he was chased away a glimmer of hope arose as the nation’s reigns were taken over by President Ranil Wickremesinghe in July 2022 who managed to bring the hopeless situation under some control. However, this optimism began to fade by the end of the year and the outlook looked quite gloomy as the tough reforms including increased taxes began to bite. The first quarter of 2023 seems to have turned things around once again with the government agreeing to implement an IMF program along with all major creditors agreeing to restructure their debt to Sri Lanka. With the promise of sustained improvement of the economy, a glimmer of hope is once again noticed among the people.” We said that while the main opposition was in general agreement with the reforms, they were arguing for a greater focus on a strong social safety net for the lower income groups. We concluded by noting that Sri Lanka was nowhere near out of the woods and that unless the government maintains the momentum of reform it is certainly not going to be possible to get the nation back on a sustainable path of growth. But we insisted that the government must pay much more attention to equity; to understand and effectively deal with the unprecedented suffering of the lower income groups.  

During the quarter the government took two major decisions; one was to restructure domestic debt amounting to approximately USD 42b, roughly half of total debt, and the other was the new welfare scheme called ‘Aswesuma’. Both decisions have come under serious criticism. The domestic debt restructure has been roundly criticized by all opposition parties as well as civil society organization and trade unions for targeting only the pension funds while leaving out banks, corporations, primary dealers and high net worth individuals. In fact, we had mentioned last quarter the need for the government to maintain a sense of equity in dealing with the reforms, and it is this equity principle that has been breached, according to the critics. On the Aswesuma program, a revised registry of beneficiaries was agreed to be used for the implementation of enhanced welfare benefits from the third quarter, but the registry itself has run in to major problems with large numbers of poor complaining that they have been deleted form the beneficiaries register. While it is imperative that the heavy political bias of the existing welfare scheme (Samurdhi) has to be removed, it should be done while ensuring those who have fallen into poverty in recent months during the economic crisis are also included. (The World Bank has projected poverty has risen from 13 percent of the population to perhaps 25 percent in the last couple of years.)         

While the more affluent of society seem to be adjusting back to a fairly normal lifestyle, albeit the higher prices for food and consumer items, the poor seem to be caught up in a tough situation with rising costs, albeit at a much lesser pace, exponential increases in electricity tariffs and associated expenses with incomes either stagnating or falling. With the opportunity for the people to register their protest at the nationwide local government elections denied with the postponement of the same, protests have erupted in many parts of the nation, but much less vociferous than those seen during the crisis.

That is why we feel that while the distant glimmer of hope is still shining, it has begun to flicker.  

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 for this assessment were conducted from 01 to 30 April; from 01 to 31 May and from 01 to 30 June, 2023. This quarterly report is therefore based on a total survey of approximately 1,500 persons in three months and provides an ongoing commentary on how Sri Lankans feel about their economic future at this moment and the next twelve months. 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 analyzed and presented quarterly. The focus is on perception of economic opportunity. Perceptions of one’s ability to save and of 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 fallen to its lowest in mid-2022 to a mere 1.4 percent picked up to 3.7 percent in September that year with a glimmer of hope with the announcement that Sri Lanka had reached a Staff Level Agreement (SLA) the International Monetary Fund (IMF) to receive a USD 2.9b bail-out package. With the EFF getting delayed, optimism fell again to 2.4 percent by end of 2022. But as the IMF Board approving the EFF and disbursing the first tranche and all major creditor nations agreeing to restructure Sri Lanka’s debt, the sentiment improved with perception of a better tomorrow moving up a tad bit to 2.5 percent at the end of the first quarter 2023. People’s optimism about their own success fluctuated slightly from 2.3 percent in April, 1.8 percent in May and ended at 2.8 percent in June 2023.

Looking at the historical trends the unfortunate reality is that Sri Lankans have continued to lose hope in their future over the last decade or so. The two markers are when optimism rose: with the change of government in January 2015 and at a much lower level in November 2019.       

How can this trend be reversed? How can the hope of Sri Lankan people be reignited? Unless it can be done the nation will continue to lose its skilled young people who have begun to migrate at an alarming rate. From doctors and software engineers to plumbers and electricians, young people are voting with their feet. It is the same with low skilled household workers or construction site assistants. Passport queues are kilometers long and congestion at the airport is unprecedented. Estimates suggest that more than 300,000 people migrated in 2022 alone.    

While the macroeconomic data suggests a stabilizing economy, albeit at a much higher price level, micro data here is undeniably strong that a terrible sense of hopelessness has set in. The critical issue facing the government and opposition political parties is to reverse this trend. But how?

2.2          How much can I save?

Here our objective is to determine the perceptions on the ability to save. This is also a way to estimate the cost of living. The cost of living is the combination of income one receives and the expenses one must meet to maintain a certain lifestyle.

As seen in the table and chart below inflation reached dizzy heights, in excess of 70 percent, towards the third quarter of 2022. However, inflation began to fall slowly during the last quarter 2022 with the hiking of policy interest rates by the Central Bank. Inflation had fallen to 12.0 percent by June 2023 (and to 6.0 percent by July 2023. However, what matters to the person in the household is not really the pace of increase in the price level, but the price level. What cost LKR 100 the other day now cost LKR 200. That is the reality.

Source: Department of Census and Statistics, Trading Economics

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.

By the end of 2022 those who thought they could save a little more than at present were at a low of 1.4 percent. But as inflation began to fall, albeit slowly, this perception gradually rose to 3.8 percent by the end of the first quarter 2023. However, this perception has worsened in the second quarter with those who believe they will be able to save a bit more than now in the next twelve months registering only 2.2 percent in April, 2.6 percent in May and a mere 1.6 percent in June 2023.  

2.4          Will corruption be reduced?

The question posed is if the respondents perceive that corruption will lessen in the coming 12 months. It is quite clear that people of Sri Lanka seem to have lost hope in attacking corruption. It is significant that post the change of the presidency in 2019 and the parliament in 2020 hope rose but soon it fell.  

The perception of reducing corruption is around 3.6 percent. The government has promised to legislate a new anti-corruption Act in line with global best practices forced to do so as per a conditionality by the IMF to do so in order to receive the bail out assistance.

2.5          A Question on Global Integration

Besides the questions we ask respondents monthly to establish trends, we also seek to understand how people react to current issues. Given the lack of hope in the economic conditions and the need to reverse this trend, there are two schools of thought developing in the current discourse. Simplified, one is to open the country and integrate with the world. This calls for trade reform including lowering of tariffs and forcing domestic producers to compete with regional and global manufacturers. The other is a more insular structure where domestic players are protected with high import tariffs and other levies, duties, and quantitative restrictions. This is relevant because what seem to be a significant section of society is of the view that it was the liberalization of the late 1970s that created an ‘open economy’, even the factually incorrect as many restrictions remained, that caused the economic crisis of Sri Lanka by ‘killing off’ domestic industry and ‘privatizing’ state owned enterprises while the other smaller group argues for much greater integration with the world via much more efficient manufacturing enterprises within the private sector.  

The question we asked was “Some people say it is good to reduce import duties and allow domestic industries to compete with other countries and capture a bigger global market share. They say that is how our neighboring countries are developing and that model will create export jobs locally. What do you think?” The responses to the question were rather unexpected with those agreeing strongly or agreeing somewhat being more than those disagreeing with a fair number unable to comment.  We plan to monitor this trend to assess if this thinking will be sustained.    

Should Import Duties be Reduced and Domestic Industries Made to Compete

3.0          Concluding Thoughts

The glimmer of hope that people of Sri Lanka saw with President Ranil Wickremesinghe taking over from Gotabaya Rajapaksa who abandoned the nation in July 2022 continues to be alive, yet it seems to be fragile. Hope for the future has all but disappeared and most have very little optimisms about the future. Those who can find opportunities overseas, be they professionals or unskilled workers, are leaving in large numbers. The situation is rather gloomy. Data from the last eleven years suggest that it would be at the next election that the people will have an opportunity to revive their hope and also the data suggests that unless something significant changes in terms of taking the nation out of the economic rut it has fallen into that hope would once again disappear. The responses to the question on improving efficiency in domestic production and competing with the world by integration provides some indication that perhaps the thinking pattern of the population is changing post crisis. However, whether this is a temporary phenomena is to be observed in the coming months.      

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