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Business confidence plummets in the aftermath of the Easter Sunday terror attacks

June, 4, 2019

Business Sentiment - The Index Continues to Tumble

On 13 May, the IMF Executive Board announced the completion of the fifth review under Sri Lanka’s extended arrangement for the Extended Fund Facility (EFF). And it granted waivers of nonobservance of performance criteria, approval of a US$ 164.1 million disbursement and an extension of the arrangement.

The IMF pointed out that Sri Lanka had successfully brought the EFF supported programme back on track while emphasising that “sustaining policy discipline remains critical to strengthen resilience, and support strong and inclusive growth.”

It also noted that “extension of [the] EFF arrangement by one additional year will provide a policy anchor to complete Sri Lanka’s economic reform agenda.”

Of course, we also know that 13 May marked another dark chapter in Sri Lanka’s postwar era with violent mobs going on the rampage in several parts of the country, leading to the imposition of curfews and yet more negative coverage in the press – both local and global – in the aftermath of the Easter Sunday attacks of 21 April.

And while the 13 May violence isn’t factored into the results of the latest LMD-Nielsen Business Confidence Index (BCI) survey, which was carried out in the first week of that month, it doesn’t bode well for business confidence – and therefore, the unique index that measures it – in the near and possibly medium terms.

THE INDEX The BCI declined by a further 15 basis points to 62 in May, which is its lowest level since July 2008 – that’s almost 11 years back. A year ago, the index stood at 106 with the average for the last 12 months registering 93.

Worse still, this represents the third month in a row where the BCI has fallen sharply – in February, the barometer stood at 115 points.

“The Easter Sunday attacks have had a telling impact on confidence levels in the country, be it among the business community or citizens and consumers in general,” says Nielsen’s Managing Director Sharang Pant.

Nevertheless, he notes that “everyone needs to weather this storm and emerge stronger for the benefit of the nation.”

SENSITIVITIES National security as well as the impact of recent events on the tourism industry are among the main concerns of businesspeople.

According to one respondent, “the state of national security is very poor and there are growing tensions in the country. It is hard to say how our business will be affected and whether the economy can recover in the short term.”

PROJECTIONS In the previous edition of LMD, we alluded to the likelihood of more bad news given what transpired on 21 April.

And while this has indeed been the case as the corporate sector looks to recover from the multiple acts of terrorism on Easter Sunday, there are new concerns over the cycle of violence and reprisals, on 13 May and beyond.

So as the BCI inches ever closer to its all-time low of 31 (of nearly 18 years ago), we’re at a loss to know what to expect in the weeks and months ahead.

Sadly, this is a reflection of the state of the nation at this juncture.