Business Sentiment - Index Crosses Century Mark

In the midst of the ruckus surrounding a pivotal presidential election, the IMF says that Sri Lanka’s macroeconomic policy reforms are beginning to bear fruit, anticipating agreements with external commercial creditors soon.

This statement preceded the recently concluded second review of the International Monetary Fund’s US$ 2.9 billion bailout programme, and highlighted Sri Lanka’s robust programme performance. The IMF also affirmed that most quantitative and structural conditions for the second review have been met, albeit with some delays in implementation.

While this is encouraging news, the nation is gearing up for its next presidential election with several potential contenders emerging but without an official date for the poll.

At the same time, President Ranil Wickremesinghe maintains that the proposed Economic Transformation Bill will be the first step towards achieving economic stability going forward. He assures that in a few months, the country will emerge from bankruptcy but stresses that complacency could risk a regression.

THE INDEX For the fourth consecutive month, the LMD-PEPPERCUBE Business Confidence Index (BCI) registered steady but modest growth, surpassing the 100 point threshold in June (to 101 – compared to 99 in May).

This marks the barometer’s return to above 100 after a year, following its post-aragalaya peak of 108 in April 2023 when ironically, the IMF’s Extended Fund Facility (EFF) was approved.

Despite this improvement however, the index remains below its all-time average of 122.

PepperCube Consultants observes that optimism about the economy has held since April while the corporate sector’s outlook for sustaining business volumes improved in June.

It adds that businesses seem to be preparing themselves for the unpredictable political climate ahead as the nation approaches a crucial presidential election.

SENSITIVITIES The reality however, is that the business community is already contending with the effects of political instability and interference, which rank as the top two concerns, followed closely by high taxes.

Critical indicators such as the cost of doing business, despite inflation being in the low single digits, and the tax and interest rate regimes – though perhaps temporarily on the backburner in June – continue to weigh heavily on prospects for the engine of growth.

PROJECTIONS As election campaigning intensifies, the political turbulence and uncertainty it creates are expected to have a telling impact on both business and the economy.

Meanwhile, the mixed bag of good and not so good news on various fronts makes for uncertain times with the election outcome likely to set the pace for the national economy in the fourth quarter of this year – and beyond.

As PepperCube notes, “the economy, politics and the political culture continue to be the most pressing national issues as the corporate community braces itself for the upcoming election.”

So as we said last month, the index – like the economy – could rise or fall!

– LMD