By: Staff Writer
May 04, Colombo (LNW): Sri Lanka’s business confidence is on the decline at present due to significant challenges and uncertainties. The government’s commitment to economic reforms, debt restructuring, and fiscal consolidation is crucial for sustaining a positive trend.
The next few months will be critical in determining whether the BCI continues its negative or upward trajectory or stabilizes in response to evolving economic conditions.
Tariff turmoil shatters business confidence,” business magazine LMD reports, in its soon to be released May edition. In an exclusive release to the Daily FT, the magazine notes that “business sentiment has nosedived, leaving the record-equalling highs of recent months in the rear-view mirror.”
“The LMD-PEPPERCUBE Business Confidence Index (BCI) fell substantially in April – following its record-equalling high of 204 in February – shedding 25 basis points to settle at 172, from 197 in March,” LMD observes.
Despite the decline, however, it explains that the index remains 49 points above its historical median (123) and 28 notches higher than the 12-month average (144). “For perspective, the barometer stood at a lowly 96 at the same time last year,” it adds.
According to PepperCube Consultants, “the free fall in confidence signals a marked shift in business sentiment, primarily driven by external headwinds such as the imposition of US tariffs and growing domestic dissatisfaction with the Budget 2025.”
A spokesperson for the leading magazine says: “As for the direction of the BCI in the near term, much will depend on how the Government navigates the unfolding US-led trade war and delivers on a plethora of Election promises.”
“The outcome of the Provincial Council Elections and the fate of the Sri Lankan Rupee will also be on the watch list of the business community,” he adds.
The BCI reached a six-month high, indicating a positive outlook among business leaders. A majority of business leaders expect higher sales volumes in the coming year, although slightly tempered from February’s peak.
A significant portion of firms are planning to expand their workforce, suggesting a positive outlook for the labor market. The Colombo Stock Exchange saw a record Rs 175 billion in capital raised, indicating investor confidence.
The external debt restructuring process was completed, and the country’s ratings were upgraded, boosting investor confidence. The World Bank projects a revival in domestic demand, which could lead to further positive economic growth.
Despite overall business confidence, investment climate confidence has plummeted to crisis levels. While corporate sentiment is improving, concerns about long-term growth and strategy persist. While inflation is projected to turn positive, it is still below the central bank’s target, and financing pressures will persist.
Sri Lanka faces large T-bill refinancing needs, which could put pressure on the economy.While the government has a strong majority, there are concerns about potential protests and strikes, particularly related to privatization efforts.
