CEO's have mixed outlook for Sri Lankas's economy in 2021

08 February 2021 Consultancy.asia 4 min. read
Profile
More news on

An MTI Consulting study in partnership with Daily FT, Daily Mirror and Sunday Times has revealed a tentative business environment in Sri Lanka. Most are confident of economic stability and business growth in 2021, but remain weary of key challenges.

The group surveyed more than 100 business leaders in Sri Lanka, to gauge expectations at the turn of a new year. The backdrop is a pandemic-ridden 2020 that saw myriad disruption to Sri Lanka’s economy, much like the rest of the world.

According to MTI Consulting, Sri Lanka’s GDP contracted by over 5% in the first nine months of 2020. Agriculture, services, tourism and trade were all directly hit by lockdowns and infection risks, while key segments such as construction, apparel and commodities all saw revenue declines of over 10%.

Sri Lankan businesses performed worse than expected in 2020

Not surprisingly, most business leaders report a torrid 2020. Nearly three-quarters revealed that their business performed below expectations last year, while only 10% performed on budget. That being said, the pandemic might not be solely responsible for this outlook. MTI Consulting reports from recent years have all revealed a disappointed business landscape in Sri Lanka.

In fact, the 16% of businesses that reported a better year than expected in 2020 is actually higher than in the last half a decade – signaling either high performance or managed expectations. At any rate, businesses will be happy to leave 2020 and all its repercussions in the past, and many seem to be charging into 2021 with a positive attitude.

Expectations from the global economy in 2021

Well over 50% of respondents predict a recovery for the global economy in 2021, while another 6% actuially expect it to take off. Around a third have a more ambivalent perspective, anticipating a sustained depression through this year. Sri Lanka’s economy faces largely the same prospects according to business leaders, even though the country might be better positioned than many global markets.

An unforeseen outcome of the pandemic has been a disproportionate hit to leading economies such as the US, UK, mainland Europe and even China. According to the International Monetary Fund, these economies will likely continue their struggle with a recession in the near future, while the developing world will drive much of the economic growth in 2021.

The Sri Lankan government holds a similar perspective, forecasting growth of over 5% in this year’s budget. According to MTI Consulting Analyst Teshan Gunasekara, the government’s assessment reflects “confidence in its initiatives taken towards developing domestic industries, creating an investor-friendly environment and expected recovery of external demand from major markets.”

Expectations from the Sri Lankan economy in 2021

Yet, businesses remain cautious in their assessment. More than a third actually expect a decline in Sri Lanka’s economy this year. The fact is that Sri Lankan executives remain weary of the myriad challenges still facing the country even as they enter the new year.

For nearly 80% of Sri Lankans, economic policy is the biggest issue going forth. Most of this has to do with debt repayment, with government debt having jumped by nearly 13% between January and July last year. As of August 2020, Sri Lanka’s external-debt stock amounts to more than $35 billion.

Challenges and concerns for Sri Lanka in 2021

The country’s standing with international ratings agencies is falling as a result, putting foreign direct investment high among the concerns as well. Other challenges include a lack of economic stability and a ballooning budget deficit. Outside of the economic sphere, the perennial issue of corruption persists in Sri Lanka, spurred on by a lack of adequate governance structures.

All these factors make up the macro-level outlook. Confidence levels are notably higher at an individual business level, as economies start to reopen and the vaccine rollout gains momentum globally. Nearly half of businesses in Sri Lanka expect to perform better this year than they did in 2020, while around 40% predict roughly the same performance.

The fact is that macro-economic barriers need not be a hindrance for businesses, particularly if they are equipped with the agility and capacity to navigate a dynamic market. Much of the policy and governance issues identified above have been plaguing Sri Lanka for years, and businesses have built the tools to sustain themselves in such an environment.

Sri Lanka business outlook for 2021

“Similar to previous years’ survey results, CEOs believe that challenges their businesses will face in 2021 are external and out of their control – thereby emphasizing the importance of being proactive and thinking outside the box in order to remain resilient and adapt to the new normal in the new year,” explained Gunasekara.

“Based on the analysis of the responses, Sri Lanka’s business leaders appear to be optimistic and hopeful for 2021, despite the disruptions to lifestyle, livelihood and the economy during the Covid-19 pandemic in 2020,” he concluded.