The ongoing evaluation – the first such review by the IMF – of the four year Extended Fund Facility (EFF) programme, the new Inland Revenue (Amendment) Bill, continuing disinflation, the domestic debt optimisation (DDO) framework, and the fluctuating price of fuel are having whirlwind effects in business circles.
The Central Bank of Sri Lanka says it is confident that policy measures adopted thus far along with well anchored inflation expectations will stabilise the Colombo Consumers Price Index (CCPI) around mid-single digit levels over the medium term.
In fact, in this edition of LMD, the Governor of the Central Bank Dr. Nandalal Weerasinghe reveals that “a sizeable and swift downward adjustment in market lending interest rates is expected in the near term.”
Indeed, this assurance will be music to the ears of businesses of all sizes and shapes.
Meanwhile, the Inland Revenue (Amendment) Bill – which received parliamentary approval – will play a pivotal role in securing debt sustainability. President Ranil Wickremesinghe has emphasised the importance of this to ensure debt sustainability, which is a critical requirement of the US$ 3 billion EFF, not to mention efforts to overcome bankruptcy and external debt default.
Meanwhile, the government announced that Sri Lanka Development Bonds (SLDBs) have been completed within the DDO framework. This could enable the government to reduce its gross financing needs (GFN) so as to align it with the target specified in the International Monetary Fund’s EFF programme.
THE INDEX Amid these developments, the LMD-NielsenIQ Business Confidence Index (BCI) gained eight basis points in September to reach 81 – which is still seven notches shy of its average over the last 12 months (88).
The index is also a whopping 27 points below its high-water mark since October last year – i.e. 108 in April. For the record however, the barometer is five points higher than where it was a year ago (76).
SENSITIVITIES Topping the list of sensitivities could well be the outcome of the IMF’s review of Sri Lanka’s progress in meeting the commitments made under the EFF agreement.
To this end, Verité Research recently reported that Sri Lanka has met “at least 38 of the 57 IMF commitments due by end-August.
In addition, the business community will soon factor in two forthcoming pronouncements – viz. first and imminently, the presentation of Budget 2024 in parliament in November, which could be followed by news on the election front.
Meanwhile, OPEC has warned of a massive global crude inventory deficit of 3.3 million barrels per day (bpd) in the fourth quarter and this could have far-reaching impacts on prices across the globe in the new year.
PROJECTIONS NielsenIQ’s Market Leader – Sri Lanka Adrian Hakel says that “it remains to be seen how the recent price increases for gas and fuel will impact the index in October.”
And LMD continues to stand by its assertion in recent months that the index will remain in negative territory given the sensitivities that businesspeople will be mulling over in the near term.
- LMD
