Perceived Economic Opportunity Index 2021 [PEOI] Q2: March to June, 2021

This month we mark ten years of tracking the perception of economic opportunities among the people of Sri Lanka via the Perceived Economic Opportunity Index (PEOI). Having begun in July 2011 this measurement continued every month except for a short break in 2015 and a couple of months during the Covid19 pandemic. The higher level of the index registered as we started was most likely due to the continuation of the optimism generated with the conclusion of the almost three-decade ethnic conflict in mid-2009. But by end 2012 that positive feeling had dissipated. But each time a new President and a Parliament was elected people felt positive about their future; their hopes rose. But the stark reality is that this optimism was always short lived. Their hopes seemed to have been dashed every time.  By and large people of Sri Lanka have not felt optimistic about their economic future for the last decade. This is certainly not a good place to be as a nation.

How can perceptions about the economic prospects improve? What must happen? Where can the government intervene? Answers to these questions are not contained herein. But it is important this regular measurement is carried out to assess the reactions of the people to various changes in policy by the Government of the day to bring that elusive optimism, that positive perception about their future, to the people.

This quarterly report based on a survey of 1,500 persons in total over three months provides an ongoing commentary on how regular Sri Lankans feel about their economic future at this present moment.

1.0          Methodology

The PEOI is calculated based on data collected by PepperCube Consultants on an island-wide random survey of face-to-face interviews among 500 persons. For the second quarter of 2021, the surveys took place from 01 to 30 for April; from 02 to 31 for May and from 01 to 30 for June 2021.

2.0          Presentation of Findings

As always, monthly survey data is presented quarterly. The main focus is on the movement of the perception on economic opportunity. The perception on one’s ability to save and the perception on corruption are regularly presented. The survey also tracks perceptions on cost of living, development of the country, media freedom and law and order among others. These are reported periodically. 

2.1          Perceived Economic Opportunity

The question posed to the respondents is whether they believe their economic opportunities, be it in the workplace or in their business, would increase stay the same or diminish in the year ahead.

As opposed to the end of the first quarter of 2021 the improvement of the perception started to decline in the second quarter. Even though in February the government started a nation-wide inoculation program using 500,000 doses of the Oxford-AstraZenica vaccine gifted from India and announced it had placed orders that would be sufficient to vaccinate all eligible persons amounting to some 15 million citizens and residents, the program did not progress as promised. The government could not procure the required numbers and millions were left without vaccines.

Source: Our World in Data, Oxford University

As shown in the above graph by Oxford University, confirmed daily deaths in Sri Lanka began to rise in April and May and even with a slight reduction in June the numbers were far higher than the previous quarter. This led to the fall in the optimism that was beginning to build. This change seems to be well correlated to the lapses in management of the pandemic and the rising daily reported death rates with a lag of few weeks.

The percentage of people who felt their economic opportunities were going to be brighter increased marginally from 6 percent in March to 8 percent in April but dropped to 6 percent in May and stagnated at 7 percent in June.

The current level is a significant fall from the 23 percent registered in August 2020 when people expected to advance in their job or do better in their business at the beginning of the new term of Parliament with a two-thirds majority to support the policies of the President elected in November 2019. While it would not be incorrect to assume that the fall and low level of confidence is directly correlated to the pandemic it is noteworthy that the fall of confidence from the high of 23 percent to a low of 1 percent happened between August 2020 and January 2021. This suggests that the problem is beyond the pandemic and is broader issue.

2.2          What will happen to the development drive?

The below chart is based on a particular question in the survey as to the perception on the pace of development activity in the coming twelve months. It is noticeably clear that people are not of the opinion much will happen. More than half believe development work will slow down or completely stop. This view is certainly linked to the low expectations of their individual opportunities. We shall in the next quarter undertake a further analysis to understand how strong this correlation has been in the past and if there have been any significant departures in given instances.

2.2          Perception on Ability to Save

Here our objective is to determine the perceptions on the ability to save; an inadvertent way to estimate cost of living as well.

To assess the ability to manage the cost of living and to have something left over, we asked the respondents about their personal savings in the coming 12 months. The perception of the public’s ability to save a ‘little more’ than what they do at present fell in January 2021 to an almost 9-year low of just 1 percent but picked up to 10 by March reflecting the optimism seen earlier. However, that momentum was not sustained. In April it stood at 6 percent, rose marginally to 8 percent and fell to 4 percent by June 2021. All indications above leads to a disappointing situation of hopelessness about the near term of the economy.

2.3          Perception on Corruption

The question posed is if the respondents perceive that corruption will lessen in the coming year.

The positive sentiments among the people that corruption will become less fell from 21 percent at end March 2021 to 13 percent by end June. That is a drastic decline from the 64 percent recorded September 2020 with the installation of the new government; the highest since we started measuring it ten years ago. This fall in confidence on corruption at such a rapid pace is a serious concern.

3.0          Concluding Thoughts

The positive feeling about the future that was seen with the election of President Gotabaya Rajapaksa in November 2019 fell somewhat soon thereafter and got worse with the onset of the Covid19 pandemic. Then again hope for better days rose with President Rajapaksa’s party winning the general election with the installation of former President Mahinda Rajapaksa as Prime Minister in August 2020 in the middle of the unprecedented disruption of the economy due to the Covid19 pandemic lock-down.

But almost a year into the new administration after struggling to keep the confidence in the future all hope seem to have been lost. Last quarter we wrote “We would now have to see how well the nationwide inoculation program is managed. If it is successful, then the green shoots that have sprung up (once again) would grow into strong confidence and that will help push the economy forward. But, on the other hand if the management of the nationwide inoculation program fails, then the consequences would be grave as the optimism would turn to pessimism.” Our analysis appears to be correct. The failure of the vaccination program has dealt a massive blow to the expectation of a productive future.

This third quarter will be a major test for the authorities. While the pandemic is raging the vaccination-program is also being rolled out at relentless pace. Whether that would suffice to turn the mood is questionable because Sri Lanka is on the brink of a massive balance of payments crisis with severe import controls and a fast-depreciating currency making day-to-day life exceedingly difficult for most.

The Perceived Economic Opportunity was developed and is measured by the Foundation for Economic Freedom in Sri Lanka (FEF) in partnership with Friedrich Naumann Stiftung Fur Die Freiheit.