Sri Lanka gradually regains its fallen economic optimism

November, 18, 2016

Perceived Economic Opportunity PEO: September, 2016

This brief report of the Perceived Economic Opportunity (PEO) presents the analysis of a random survey carried out using a sample of 400 men and women in September 2016 covering all districts in Sri Lanka on their expectations of economic prospects in the coming 12 months.

Status of the job prospects or business development

Analysis of the perceived economic opportunities show that there were higher economic expectations among the people when the new government came into office. The expectation to develop the status of the job or business which was at 15 percent in the month of December 2014 rose rapidly to 40 percent by the month of January 2015. However, the expectation of the same decreased to 8 percent in the month of March 2015.

The new analysis for the month of September 2016 (the survey was only done intermittently during this period) shows that there is an increasing trend of the expectation. The trend had increased to 12 percent in the month of September 2016 as depicted in the chart below.

The government’s progressive economic program by the month of September, with most of the stalled development projects restarted, could likely be one of the key reasons to uplift people’s expectation.

The Gross Domestic product or GDP grew by 3.9 per cent in real terms in the first half of 2016, mainly attributable to 4.9 per cent growth in services activities and 5.2 per cent growth in industry activities.

Tourism earning increased by 16 percent, while the remittances were up by 4.5 percent in the first seven months of the year from January to July 2016, giving money to people’s hands. This and other developments helped improved the official reserves to improve to US dollars 6.6 billion by end August 2016 helping the Sri Lanka Rupee to recorded only a marginal depreciation thus far during 2016.

Inflation, as measured by the change in the National Consumer Price Index (NCPI), decreased to 4.5 percent in August 2016 from 5.8 per cent in July 2016, on a year-on-year basis. Inflation, as measured by the change in the Colombo Consumer Price Index (CCPI) also decreased to 3.9 percent in September 2016 from 4.0 percent in August 2016, on year on year basis indicating a slight slowdown.

The growth of credit granted to the private sector by commercial banks which increased by 62.9 billion rupees in July 2016, was significant indicating private enterprises taking out greater amount of bank loans for expansion.
These reasons are likely to have had an impact on the improvement of the expectation of the job status and the business profitability of the people.

Ability to save

As per the analyses of the situation in the month of September 2016, the expectation to save a little more from the personal earnings in the next 12 months, as opposed to the last 12 months, has seen an upward trend from the previous measurement in July. The same expectation was at a much higher level when the current government came into office, but gradually decreased (once again, based on intermittent measurement)

Expectation for reduction of corruption

The higher expectation for the reduction of corruption in the country that many expected at the time the current government came into the office decreased somewhat in past months (as per intermittent measurements).

But it is significant to note that the same expectation is increasing as per the September 2016 edition of the Perceived Economic Opportunity. The government’s positive approaches against corruption in the recent months up to September 2016 could be the reason to regain the expectation.

Perceived Economic Opportunity has been designed and developed by the Foundation for Economic Freedom in Sri Lanka and the nationwide surveys are carried out by PepperCube Consultants.