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The business community has been in tears since the “macroeconomic stabilization” commenced in late 2018. The business pages of news dailies regularly feature chamber, council and association types sounding alarm bells. However, findings from a recent business survey suggest that while businesses are generally pessimistic about the overall direction of the country, there are more people who feel that the next year is going to be good for their business than those who think otherwise.

Gallup Pakistan has recently released a new Business Confidence Index to measure the business community’s sentiments. This is the first wave of the survey, conducted with owners and managers of 433 businesses between October and December 2019, in sectors such as manufacturing, construction, financial services, and, wholesale and retail trade. The survey overwhelmingly represents Punjab (73% of respondents) and does not include Balochistan.

Since there is no baseline available for this survey, it isn’t possible to evaluate the change in business sentiments over time. Still, some of the findings of the first wave are instructive. For instance, 60 percent of the surveyed businesses indicated that Pakistan was heading in the wrong direction. What isn’t clear is which factor(s) respondents attribute to this sentiment. But there can be a less-partisan explanation.

Over 60 percent of respondents each in Punjab, Sindh and the federal capital indicated that Pakistan was heading in the wrong direction, but 78 percent of respondents from Khyber Pakhtunkhwa said the country was heading in the right direction. Recall, it was only in KP where PTI was re-elected with a strong majority, with Punjab turning a divided electorate in the 2018 elections. There must be something that PTI is doing right in KP, especially when it comes to keeping business community involved in policymaking.

Despite the pessimism over country’s direction, some 43 percent of respondents noted that the coming year would be “better” for their business, whereas 36 percent said the next year would be “worse” and 16 percent expected no change in their business fortunes. The overall net optimism score (“better” minus “worse”) of 7 percent is a contradiction of sorts: why are more respondents expecting their businesses to do better in the future even as a majority sees the country going in the wrong direction?

It is KP again that comes out as an outlier (net optimism: 56%), followed remotely by Sindh (17%) and Punjab (4%), whereas Islamabad was the most pessimistic among the lot (-25%). Net optimism was higher for businesses dealing in local market (9%) than businesses dealing in import/export (net optimism: 2%). This is also a contradiction, as LSM data show that export-oriented industries are doing somewhat better than industries that cater mainly to local consumption. Importers, however, are feeling the heat as inward shipments have reduced due to import compression policies.

While Gallup Pakistan deserves credit for launching this survey, it ought to publish its next wave of findings in terms of sectors as well (or at least club the sectors under two broad categories of “industrial” and “services” businesses). This will ensure that findings can be used alongside other such surveys. Also, it would help if sentiments relating to production, sales, employment, investment, credit, etc. are also reported in subsequent reports.

Be that as it may, its current findings seem to chime with the current negative sentiment and expected positive sentiment reported in State Bank of Pakistan’s recent Business Confidence Survey. Within the SBP’s index, the ‘current business confidence index’ came in at 40 for October 2019, up from 37 in August 2019. This negative reading can correlate with the overall pessimism seen in Gallup survey where the country is deemed by most business owners and managers to be heading in wrong direction.

Also, SBP’s ‘expected business confidence index’ reading of 56, up from 54 in August 2019, has a positivity that is reflected in Gallup survey’s favorable net optimism score. However, this business sentiment is at odds with declining consumer confidence. Data from SBP’s recent consumer confidence survey (November 2019) show that consumer sentiment is bogged down by heavy inflationary expectations, as individuals were more downbeat on their purchasing power in the future.

In short, the times are still hard for businesses, but pessimism is apparently not their defining word for the future. However, given the infirmity of recent macroeconomic recovery, it will take some time to create suitable macro and fiscal conditions for economic expansion, which in turn will cause the consumers to stand up and induce aggregate demand growth. The key for the government, then, is to improve the business sentiment by involving the business community more in policymaking and budgetary processes.