Business Confidence Index

EDITORIAL: Strangely, while the OICCI’s (Overseas Investors Chamber of Commerce and Industry’s) latest BCI (Business Confidence Index) survey shows an overall year-on-year improvement in Mar-Apr, it’s still not something to write home about.

For, the nuanced picture of business sentiment during Wave 24, as it is called, shows confidence standing at negative 18 percent, marking a visible positive shift from negative 25 percent recorded earlier.

And it says a lot that sectors recording the largest increases still languish deep in red; like manufacturing at negative 10 percent (from negative 19 percent), services sector at negative 18 percent (from negative 26 percent) and retail and wholesale sector at negative 31 percent (from negative 35 percent).

The OICCI president attributes this “improvement”, since results are better than before, to “relatively stable macroeconomic indicators, favourable changes in the political and economic landscape, which was also supported by stability in FX rates, and a record performance at PSE (Pakistan Stock Exchange)”. That should suffice, according to the chamber, to make businesses anticipate further improvements in coming months.

While that would be welcome, no doubt, the report also says that more than three quarters of respondents expressed concern “that the current economic situation could adversely affect their businesses”.

That’s a far more realistic interpretation of prevailing conditions, as well as the results of the survey, than an over-optimistic estimation of the next couple of quarters. That’s because of the top three identified threats to smooth sailing — rising inflation, high taxation, PKR depreciation — not even one is going away anytime

soon. Inflation is on the rise once again, despite the recent small dip in food prices. Taxes will progressively increase as long as Pakistan remains dependent on IMF loans, which will be a very long time. And the rupee is finishing the year as the continent’s worst performing currency, with little chance of revenue inflows putting a floor under it.

Still the movement, even at snail’s pace, is in the right direction. That in itself speaks very well about the resilience of the top performing sectors as they slowly improve their positions.

The economy may have stopped haemorrhaging, but businesses are still handicapped by unaffordable, abnormal input costs because of high cost of utilities as well as magnified raw material import costs because of the collapsing rupee.

That simply prices most of them out of the international competitive market and puts serious question marks on their ability to keep functioning, much less remaining profitable.

It’s unfortunate that the understanding with the Fund rules out any government support for any sector. If anything, taxes will continue to rise and subsidies shrink as the process of painful structural reforms rolls on and ensures continued fiscal support from the lender of last resort.

That leaves sectors that drive the economy on their own as they face international headwinds like commodity super cycles and cut-throat price competition and also local constraints like the unfavourable economy, especially unbearable fixed costs.

It seems business leaders and economic managers alike will have to wait till OICCI’s next BCI survey to see if the trend holds. For now it is appreciated that they are making small advances towards regaining competitiveness and profitability.

Copyright Business Recorder, 2023