EDITORIAL: Businesses are not happy. Growing economic and political uncertainty is causing an adverse impact on business confidence. Interactions with the business community in the last six months suggest a deepening sense of hopelessness and anguish, which has found its strong reflection in the latest Business Confidence Survey conducted by Gallup Pakistan.
The survey is portraying a bleak picture with a two-third of the participants believing that they are facing bad or worse conditions. And the index value is worst since its start in 2019. Sentiments were better even during peak Covid days.
According to the Survey, the businesses have highlighted three key issues. On top are inflation and demand destruction due to falling purchasing power. The second is energy shortages that are crippling the production. And the third is the general lack of direction of the country, which is perhaps the case after the then prime minister, Imran Khan, failed to survive the vote of no-confidence against him. Gallup covers all canvases of businesses with a pool of 6 million business entities.
The results are not surprising. Business Recorder’s regular channel checks with big businesses are increasingly showing anxiety. Many business families are leaving the country. Some are selling their businesses while others are opening offices outside. And a few are diversifying into the new markets. How ironic it is that no one is hopeful.
There are a number of reasons for such a poor sentiment. The core of the problem is fiscal. And successive governments have miserably failed to fix the fiscal house in order by implementing the much-needed taxation and SOEs reforms. The energy sector is the biggest contributor to the leakages. And now the fiscal federalism model has become unsustainable.
The firefighting of the political parties and other stakeholders in the state and their self-interests have dampened business or investor confidence.
The global financial conditions are getting worse, exacting a toll on all the emerging economies. One of the reasons of the PKR slide is USD strengthening and one of the reasons for the lack of access of international commercial credit is growing interest rates in the US.
Meanwhile, there remains a lurking fear of sovereign default, which has an important bearing on the market sentiment. Due to the lack of foresight and planning, the government had to suddenly revise upward the energy prices, which has made a few businesses unviable and dragged many into stress.
The country’s foreign reserves fell to an abnormally low level. The authorities decided to counter that grim situation by imposing control on the imports on engineering goods, including machinery. At the same time, payments of dividends and other forms are also stuck. Both these have taken the business confidence to a new low level. Many businesses are operating at a fraction of capacity, and even export-oriented businesses are facing difficulties in importing raw materials and machinery. The demand destruction in the buyers’ market is shrinking the export volumes.
With growing political uncertainty and difficulty in confirming to the tough IMF (International Monetary Fund) programme, the risks of loan repayments loom. Bulk of it is due to the friendly countries. Almost all the businesses have halted future investment in the country.
The big boys are increasingly thinking of moving to the new markets. One of the biggest textile exporters, for example, is mulling setting up a garment factory outside Pakistan. Nothing seems to be working at this point in time. Political temperature needs to cool down. The debt restructuring of the Chinese loans is almost inevitable. The situation requires the power that be to sit back and take stock of the situation before making more perceived or real moves, as they may be the wrong ones.
Copyright Business Recorder, 2022
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