In these times of political uncertainty in Pakistan, the country's economy is a matter of great concern. The stability of the rupee against the dollar, dwindling foreign direct investments, Pakistan's declining exports, the fiscal deficit, the increasing debt and liabilities - all these problems call for urgent solutions.
The economy needs frequent monitoring and reporting by the economic intellectuals of the country to enable the government to stay in constant touch with the strengths and weaknesses in the system.
The Overseas Investors Chamber of Commerce & Industry (OICCI), in the recently announced results of its Business Confidence Index (BCI) Survey, Wave 15, shows that overall business confidence in Pakistan stands at 21 percent positive, which is a significant improvement over the 13 percent recorded in the Wave 14 results announced in May 2017.
This eight percent improvement is a significant jump and truly reflects a major turnaround after the negative trends recorded in the last two surveys, including Wave 13. It indicates that the business community is once again bullish and increasingly confident of the investment opportunities available in Pakistan.
The lead was in the retail and wholesale sector and the survey results are reported to be largely influenced by the retail and wholesale trade sector which led the upswing, with a 40 percent positive sentiment, recording a 27 percent improvement in Wave 14.
Pakistan, with its growing middle class, is rated as an emerging and most dynamic retail market when benchmarked to global world markets in the retail sector.
The manufacturing sector, followed with a confidence level of 16 percent demonstrates a substantial net increase of seven percent, which demonstrates that quality products continue to have a market in Pakistan when value for money option is available to consumers.
The service sector, at a 15 percent net positive sentiment, recorded a marginal decline of three percent vs. the Wave 14 survey.
The OICCI BCI survey, conducted every six months, is a comprehensive review of both local and global business aspects and is indicative of the direction in which the economy is moving, based on the perceptions of key stakeholders of the business community.
It is reported that the latest increase of BCS to 21 percent was mainly due to the significantly improved global perceptions of Pakistan and its industry business situation during the past six months, as well as the expected positive industry business situation with an increased level of capital investment over the next six months.
Further, the views of the survey respondents were largely based on improvement in security, law and order and the overall economy, increased consumer demand, better business alliances, decline in the energy crises and decrease in fuel prices and low inflationary pressure on various other products.
The sentiments of the leading foreign investors, represented by the OICCI members who were part of the survey, also recorded an increase of five percent, to go up to 42 percent from 37 percent in the Wave 14 results.
Pakistan's competitiveness remains a key challenge. Pakistan's global rating in Ease and Cost of Doing Business remains miserably low. There is an urgent need to focus on addressing the country's very poor rating of 147 out of 190 countries in the World Bank's recently issued Ease of Doing Business Report 2018, down from 144 in 2016 and way below the 75 rating of Pakistan in 2010.
This key factor to invoke investments and promote exports remains out of government focus.
The other concern of foreign investors is that the government has decided to enhance and impose a regulatory duty on several items and placed non-tariff barriers in order to discourage the rampant increase in imports.
Nevertheless, it is promising that respondents of the Wave 15 survey expressed continuing optimism for the next six months with 60 percent expressing the belief that the current overall business environment is good, or very good, and 57 percent confident about the economy in the next six months. Moreover, 26 percent, 29 percent and 25 percent of respondents expecting increase in sales, profitability and ROI, respectively, in the next six months
The other factor influencing our economy is the role of the International Monetary Fund, which continues to monitor and regulate the economic health of the country.
It is reported that the International Monetary Fund and Pakistan are scheduled to initiate parleys from the first week of December under Post-Programme Monitoring (PPM), in order to gauge the economic health of the country.
The scorecard of the IMF on the economic health of the country is important, because its positive findings on the economic fundamentals can influence the loans from multilateral banks such as the World Bank and the Asian Development Bank. The IMF verdict is also a key driver for the Country credit rating.
The talks and their results are quite crucial for Pakistan owing to its present state of vulnerabilities on internal and external accounts of the country, especially on account of the current account deficit and fiscal discipline.
It would be a challenge for the government to maintain fiscal discipline during an electioneering year in the country. Already a lapse is noticeable in shape of large sums been doled out to legislators in the guise of development funds.
One of the prime commitment given to the IMF was the scaling down of the circular debt to Rs 234.930 billion in the current financial year, but it has surged to a whopping Rs 421 billion.
Also, the commitment to the IMF could not be fulfilled, to the effect that the amounts borrowed for power sector parked in Power Holding Company Limited (PHPL) will be limited to Rs 272.500 billion, whereas the PHPL loans and liabilities have gone up to the staggering Rs 401 billion.
It is reported that if the amount of Rs 421 billion that the Pakistan Electric Power Company (Pepco) owes to IPPs, Pakistan State Oil and other entities such as Wapda hydroelectricity is added to the loans and liabilities worth Rs 401 billion borrowed by the power sector, the factual circular debt stands at Rs 822 billion.
The government in its undertaking to the IMF reportedly promised to install and enforce an ambitious Circular Debt Management Plan under which it will slice the circular debt from Rs 314 billion (as of end-June 2015) to Rs 212 billion by June 30, 2018. This will do by keeping within the targets of 0.4 percent of GDP for subsidies to the power sector (about Rs 128 billion) and 4 percent fiscal deficit, while at the end of each month maintaining the debt below the cap of Rs 314 billion.
It is also reported that the plan included that the debt of Power Holding Company Limited (PHCL) will be reduced from Rs 335 billion to Rs 220 billion by FY2018.
Collection from government customers will be rationalized and subsidies will be on actual basis and paid according to schedule. Further, the government will continue to take measures to rationalize the tariff which covers all cost, including debt-servicing and ensure sufficient budgetary provision of subsidies for Balochistan's tube-wells and consumers of Fata and Azad Kashmir.
As per the plan, the year on year debt plan (FY2015 to 2018) was finalized with the IMF under which it was to be at Rs 313.618 billion in FY2015 which was to lower down to Rs 248.318 billion in FY16 and was to reduce to Rs 234.930 billion in FY17 and was further to be reduced to Rs 211.649 billion in financial year 2018.
The fact remains that none of the plan could be placed in place. Neither the loss-making public sector could be privatized nor restructure nor any fiscal or operational discipline enforced in the power sector of the government in its nearly 5 years of governance. All of these deficiencies are reflected in the ground reality that in FY17 the circular has swooped upwards to Rs 421 billion with no signs of easing out in years to come.
(The writer is former President of Overseas Investors Chamber of Commerce and Industry)