FeaturedNationalVOLUME 19 ISSUE # 11

Incremental progress

In the face of global economic challenges, the latest Business Confidence Index (BCI) survey released by the Overseas Investors Chamber of Commerce and Industry (OICCI) brings a nuanced perspective on Pakistan’s business landscape. Conducted from October to November, the survey reveals a seven percent overall improvement, underscoring a positive shift in business sentiment compared to the preceding wave.

Despite this improvement, the evolving economic scenario presents a formidable backdrop. With many businesses feeling the pinch of international competition and grappling with local constraints, the ability to remain profitable is increasingly questioned. Compounded by the stringent terms of the agreement with the International Monetary Fund (IMF), which limits government support for sectors, businesses are faced with the prospect of rising taxes and diminishing subsidies.

The survey indicates a positive trajectory in business sentiment in Pakistan as compared to the preceding wave held in March-April. While the overall business confidence remains in negative territory at 18%, it signifies a notable shift from the previous negative 25%. The manufacturing sector recorded the most significant increase, improving from negative 19% to negative 10%, followed by the services sector, which moved from negative 26% to negative 18%.

Even in the retail and wholesale sector, which remains the least confident, there is a positive trend, with confidence improving from negative 35% to negative 31%. Despite these positive developments, more than three-quarters of respondents expressed concerns about the current economic situation adversely affecting their businesses. The top three identified threats include rising inflation, high taxation, and currency devaluation, aligning with concerns from the previous survey.

OICCI President Amir Paracha attributes the improvement in business confidence to relatively stable macroeconomic indicators, favorable changes in the political and economic landscape, stability in foreign exchange rates, and a record performance at the Pakistan Stock Exchange.

Key factors contributing to the positive trend include capital investment and the outlook for Pakistan’s business situation in the next six months. However, the survey paints a nuanced picture, with 41% of respondents having a negative perspective on the business situation in the next six months, while 36% express optimism.

In a critical analysis, the report acknowledges the improvement but highlights that the sectors showing progress still face challenges, with confidence levels remaining in negative figures. The president’s optimism is tempered by the realistic concern that prevailing economic challenges, including inflation, high taxation, and currency depreciation, are likely to persist.

While the economy is making incremental progress, businesses continue to grapple with high input costs due to expensive utilities and elevated raw material import costs, exacerbated by the depreciating currency. The report emphasizes the resilience of top-performing sectors despite the ongoing challenges and suggests that, although the economy may have stabilized, sustained improvement requires addressing fundamental issues.

This situation inevitably renders most businesses uncompetitive in the international market, casting doubt on their sustainability and profitability.

Unfortunately, the agreement with the International Monetary Fund (IMF) precludes any government support for sectors facing these challenges. Instead, taxes are expected to rise, and subsidies will likely decrease as part of the ongoing and arduous process of implementing structural reforms. This ensures continued fiscal support from the lender of last resort.

This leaves key economic sectors to navigate on their own, contending not only with global challenges such as commodity super cycles and intense price competition but also grappling with local constraints, particularly burdensome fixed costs in an unfavorable economic environment.

Given these circumstances, business leaders and economic managers may have to await the results of the Overseas Investors Chamber of Commerce and Industry’s (OICCI) next Business Confidence Index (BCI) survey to ascertain if the current positive trend endures. Currently, it is acknowledged that small strides are being taken toward restoring competitiveness and profitability.

As the business leaders and economic managers await the next BCI survey by OICCI, the current positive trend, albeit incremental, offers a glimmer of hope. The journey toward restoring competitiveness and profitability is ongoing, with sectors driving the economy facing multifaceted challenges. The delicate balance between global headwinds, local constraints, and the imperative of structural reforms continues to shape the narrative.

In this dynamic landscape, resilience becomes a key asset. While businesses navigate uncharted territory, the small strides made in regaining competitiveness are appreciated. The OICCI’s BCI serves as a vital compass, guiding stakeholders through the intricate terrain of economic recovery, and the anticipation for the next survey results underscores the importance of continuous monitoring and adaptation in these uncertain times.