Elsa Sc S describes a Loss of business confidence
The Loss of business confidence socio-political and economic situation of Pakistan is dire and it is not surprising that every aspect of its fabric is bearing the brunt of instability. The business sector resisted the pressure as much as it could but it was simply not possible that it did not feel the effects of despondency spread all around. Business morale was kept high by the vast grey economy but it soon started to feel the pressure with the result that overall business confidence started to slide down further depressing the economic activity. A long period of instability triggered the economic uncertainty and the business circles went numb as they did not know how to cope with this difficulty. More worrying is the widening perception that there is little likelihood of matters improving in the short or medium terms that have increased the anxiety. It is quite obvious that the policy makers have made no contingency plans to counter such a situation and the loss in business confidence appears naturally obvious. Analysts are of the view that events like agreement with the IMF may not prove the apt solution to the problems as it would just temporarily provide some succour.
It is reported in this context that a review is carried out of the current business situation, future business prospects and direction of the country along with the economic policies devised to counter the current difficulty. At the moment, a decisively large portion of business quarters have expressed the opinion that the prevailing conditions are exceptionally bad and that they have not experienced such situation before. There is a significant increase in the number of businesses reporting very bad business conditions and the situation has not changed from last year. The number of businesses reporting that they expect to be worse off in future has gone up in equal measure. More than sixty per cent businesses have expressed doubts about their future and less than thirty five per cent are hopeful about their future prospects. The overall business confidence has considerably dwindled with hardly any prospects for improvement in the near future.
The prevailing situation is indeed very tough to do business and it appears quite justified that business confidence plummeted and the overarching perception held by the business community is negative. The corporate sector is overwhelmingly convinced that the economic policy makers are taking the country in wrong direction and that they should immediately review their approach. The over-riding issue the business community is concerned about is the galloping inflation and it is their demand that the government should do everything possible to control this trend. It is also reported that this time round the number of businesses pleading for stabilising the currency and hold it from depreciation so that doing business becomes somewhat easier. Despite asking for looking after the currency issue very businesses expressed agreement with the government for providing relief on utility prices.
Almost half of the business enterprises have refrained from carrying out any layoffs in the recent past but to offset this difficulty they raised their average output prices creating further complications for the economy. The business confidence is also badly affected by the possibilities of financial default hovering over the country and more than fifty per cent of businesses have expressed significantly high worries about this matter. The business community is extremely mindful about the increasing costs of utilities that they find difficult to bear and are also wary about increasing costs of output that ultimately suppresses demand. The frequent load-shedding of electric power is proving harmful for their production and they deeply resent in. Lack of gas supply is also a problematic issue as a sizeable number of business enterprises run on gas that is considered cheaper fuel and is much more easily affordable than electricity. The three biggest challenges identified were inflation, high taxation and currency devaluation. Other key findings indicate that businesses may be considering shelving expansion and investment plans and curbing new hiring.
It is pointed out by analysts that confidence surveys are usually reliable indicators of the direction business activity can be expected to take in the near future. The evidence is currently very negative about business activities and the business community is desperately expecting the government to devise policies aimed at providing relief. Though the business community is not very hopeful about the results of any broad-based change in the economic policies of the coalition government yet it wants some kind of intercession that may prove beneficial to business. At the moment however the business sector seems to have given up on getting price fluctuations under control and this perception is adequately borne out by the persistence of high inflation in recent weeks and months. Business sector is worried about the rising rates of taxation and apprehends that the government will heavily tax it while pursuing its programme with the IMF. The horror of increasing interest rates coupled with almost bottomless currency depreciation is causing widespread fears within the business community. It also fears that the pressures building up on the external account may further depreciate the currency making it difficult for them to meet the costs of imported inputs.
The current situation indicates that industrial machines businesses are doing better than rest of the types and they consider surviving the prevailing crisis more promising. On the other hand the retail sector is extremely hard-particularly the cloth and garment shops that are experiencing worst level of crisis with overwhelming majority confirming about the bad business conditions. Business confidence rose when the Covid pandemic peaked but it plummeted when the crisis of change of government hit the country in the beginning of last year that was followed by vast spread agitation mushrooming into massive uncertainty. It goes without saying that the political turmoil hit the business badly and soon despondency spread all over. The situation exacerbated when the complications emerged with the IMF programme resulting in fast fading of foreign exchange reserves compelling the government to restrict imports. The tight controls meant that the large majority of Pakistani manufacturing that is dependent upon imported input started to shrink.
The more the IMF discussions dragged on, the more business confidence in the country receded. The next stage was cash-crunch that became the most difficult hurdle to negotiate and the business sector fell victim to it badly. The economic discontentment gave way to political turmoil with the organs of state beginning to fight with each other fanning uncertainty. The fighting kept on escalating and the economic downturn thickened. It was quite obvious that the business confidence plummeted consistently with harrowing circumstances. The business confidence resultantly has been badly eroded as the business security considers their future as bleak. The business community is facing the classic phenomenon of customer shortage and they do not see how to overcome this difficulty. The business community is in a state of limbo not knowing where to go and what direction to take. It is quite clear that economic situation of the country is facing its most difficult period and it will take lot of efforts to overcome it. Correspondingly it will take extraordinary resilience on part of the business community to get back its confidence. TW
Elsa Sc S is doing her
graduation from LUMS & a keen researcher