manusath-derana

Business Sentiment – Index Slides to 114 Month Low

November, 5, 2018

The downward spiral in biz sentiment shows no sign of letting up as fears mount

Trade within South Asia can increase by nearly threefold  from US$ 23 billion to 67 billion dollars provided that trade barriers are overcome, according to a recent World Bank report titled ‘A Glass Half Full: The Promise of Regional Trade in South Asia,’ which notes that Sri Lanka has the potential to more than double its exports to South Asia.

The report highlights four obstacles to regional trade – border tax distortions, non-tariff barriers, connectivity costs and trust deficits – and offers options for policy makers to address them.

Moreover, World Bank Country Director for Sri Lanka and the Maldives Dr. Idah Pswarayi-Riddihough says “there is evidence that Sri Lanka will benefit financially, and improve its services sector and human resources, if it removed trade barriers and invested in better connectivity.”

But despite the promise of the aforesaid intra-regional trade opportunities, the situation on the ground as far as the corporate sector is concerned appears to be bleak – if one were to go by the results of the latest LMD-Nielsen Business Confidence Index (BCI) survey.

THE INDEX The BCI slipped further to record a marginal drop of two basis points from the preceding month and register 85 on the unique barometer of biz sentiment in October. It’s now a whopping 20 plus points below its 12 month average and where it stood in October last year.

“While the National Consumer Price Index (NCPI) eased to 2.5 percent year on year in August compared to 3.4 percent in July, the six percent depreciation of the rupee in one month and impending fuel price increases are worrying both businesses and consumers,” states Nielsen’s Managing Director Sharang Pant.

He also notes that “[business] leaders feel that certain policies of the authorities are only addressing immediate concerns whereas they expect long-term improvements for the betterment of the country – which are critical for safeguarding current investments and attracting new investments.”

SENSITIVITIES The state of the economy, the depreciation of the rupee and fears of rising inflation are among the key sensitivities, for both business and the nation.

One corporate executive reveals: “Our business has faced many obstacles mainly due to the current economic situation wherein consumers do not have money to purchase goods. And the depreciating rupee has led to substantial increases in the price of imports.”

PROJECTIONS As the free fall of the rupee continues and the global economy faces increasing uncertainty against the backdrop of higher oil prices and a trade war between the world’s two largest economies, the business landscape here at home seems unlikely to show any sign of a reprieve in the weeks ahead.

And then there’s the million dollar question of how the business community perceives Budget 2019, together with what direction the political merry-go-round will spin in the new (election) year – it’s been making loud noises for most of 2018 and that perhaps is likely to continue.

Some may even say it’s in ‘always breakdown’ mode.

– LMD