Sri Lanka’s Consumer confidence remained positive, as the economy signals recovery and this is reflected by the steady uptrend in the Consumer Index since January this year.
A positive turnaround in GDP is forecasted for 2024, signaling increased consumer demand.
Consumers have shown a fast adoption to the current economic conditions following the value-added tax (VAT) hike while expectations of sustaining sales volumes over the period ahead amidst reduced operating costs through reduction in electricity tariff and fuel prices has contributed to the rise in business confidence, says First Capital Research.
Anticipated ongoing positive consumer sentiment is poised to drive imports, buoyed by strengthening purchasing power, thereby exerting pressure on the rupee.
Heightened tourism activity may amplify consumer demand for imported goods, potentially widening the trade deficit and further depreciating the Sri Lanka rupee.
As domestic spending rises, there is a likelihood of greater preference for imported goods and services, consequently driving import
demand whilst off-peak tourism season may place downward pressure on the Sri Lankan Rupee in the latter half of 2024.
Strong upturn in tourism earnings, worker remittances has led to a currency appreciation. The Sri Lankan Rupee has been gradually appreciating against the US Dollar since November 30th last year, marking a second instance of such appreciation.
This trend is seen as a positive sign of economic recovery, supported by a positive balance in the Current Account driven by increased remittances and robustly rising tourism earnings.
The Central Bank’s efforts to bolster foreign reserves by purchasing Dollars from the market too have contributed to this appreciation. The financial aid from multilateral agencies such as the IMF, World Bank and ADB during Dec, 2023 has supported CBSL to strengthen its reserve positions thereby supporting the appreciation of the Rupee.
