Business Confidence stabilises – Sentiment steadies as businesses look to reopen following an easing of lockdown

June, 1, 2020

Sri Lanka’s corporates would have breathed a collective sigh of relief in May as the Colombo Stock Exchange (CSE) opened for trading following an extended shutdown in the face of the COVID-19 outbreak and imposition of curfew.

The move came at a time when businesses were looking to get back on track given the hit they’ve taken as a result of the coronavirus. And despite the need to maintain caution in response to an unprecedented event such as COVID-19, there are signs that life is returning to the corporate sector.

There are economic issues to consider too, not least of which the projections made by global rating agencies.

For instance, Standard and Poor’s recently downgraded Sri Lanka’s sovereign rating to ‘B-’ amid tax cuts introduced earlier in the year together with import controls leading to concerns over fiscal policy while the COVID-19 pandemic threatens to reverse the growth curve.

A statement issued by the rating agency reads: “We expect the COVID-19 outbreak to push Sri Lanka’s economy into a recession in 2020 against earlier expectations of a rebound … This would weaken Sri Lanka’s already fragile fiscal position.”

In contrast, the latest LMD-Nielsen Business Confidence Index (BCI) – while falling marginally – may offer a degree of hope.

THE INDEX The BCI has dropped further in May from the previous month’s 93 to a lowly 89. Nevertheless, this represents a less sharp decline than in April when the index plummeted by as many as 52 basis points compared to the prior month.

Intriguingly, the barometer is still higher than where it was in the immediate aftermath of 4/21 (i.e. 62 basis points in May last year).

Nielsen’s Director – Consumer Insights Therica Miyanadeniya observes: “There seems to be light at the end of the tunnel as Sri Lanka has more or less managed the coronavirus effectively compared to other countries… The country must now count the losses as this merciless virus has affected every sector, individual and fibre of society.”

She adds that “people, institutions, companies and sectors have been called upon to adjust the way they operate such that life may not be the same again post COVID-19.”

SENSITIVITIES Overshadowing issues such as inflation, the value of the rupee and high taxes, it is the impact of the coronavirus that emerges as the most telling sensitivity when it comes to business in the country today.

Meanwhile, according to those consulted in the BCI survey, the main national concern also refers to the spread of the coronavirus, followed by the economy and the adverse impact on daily wage earners.

PROJECTIONS Sentiment is seemingly beginning to hold with a greater number of corporates voicing cautious optimism regarding the future of their businesses.

On the other hand, the prospect of a general election in the not too distant horizon looms large – and whether this will be viewed as holding the prospect of delivering political stability or not will be key to driving the BCI up or down.

Provided of course, that the dreaded virus doesn’t make a comeback and send us all back into an extended lockdown.