Participants in Sri Lanka's construction sector are optimistic about the growing number of tenders for new development projects, buoyed by the availability of both foreign currency and rupee liquidity.
This positive outlook comes despite intense market competition and falling prices for construction materials, factors which are expected to stimulate more activity in a sector that has been in decline for two years.
According to the April Purchasing Managers' Index (PMI) for the construction sector, many respondents believe that the increasing trend in tender opportunities will continue in the coming months. "Most respondents were confident that the increasing trend in tender opportunities will continue in the upcoming months," the PMI report noted. Additionally, the Central Bank highlighted the "intense competition in the market" in its statement.
While the PMI for construction activities contracted in April due to seasonal factors—such as the extended New Year holidays that temporarily closed construction sites—the sector has been on an upward trajectory for several months. This growth has been driven by affordable credit, falling prices of construction materials, and the ready availability of these materials due to excess liquidity in the domestic foreign exchange market.
The manufacturing and services sector PMIs released in mid-May also indicated a similar seasonal decline in April, providing an early signal of what could be expected for the construction sector.
Sri Lanka's economy has been on a fresh growth cycle since the second half of last year, fueled by normalized monetary policy and steady foreign inflows from tourism and remittances. However, fiscal policy, a key driver for the construction sector, remains highly constrained.
The sector could have rebounded in 2022 if not for the missteps of the Central Bank and government in handling monetary and fiscal policies, influenced by the International Monetary Fund's recommendations.
Despite these challenges, construction sector participants remain optimistic about the next three months, largely due to the anticipated increase in new construction projects. "The construction sector participants continued to remain optimistic over the next three months' performance, mainly due to the increase in new construction projects," the statement added.
