Businessmen remain wary of default risk

KARACHI:  Despite the country’s efforts to secure external loan repayment arrangements through the International Monetary Fund (IMF) loan program, the majority of businesses continue to express concerns about the risks associated with defaulting on foreign debt repayments.

This information was revealed in a recent survey conducted by Gallup Pakistan.

The surveyed businesses hold little hope that the current caretaker government will offer effective solutions to the challenges they face, which include rising inflation, reduced energy bill subsidies, and a devalued currency.

The survey encompassed over 500 businesses, and almost half of them reported implementing cost-cutting measures to weather the inflationary environment experienced during the second quarter, which concluded on June 30, 2023.

According to the survey results, “The majority (72 percent) of businesses surveyed are concerned about Pakistan’s potential default, with nearly half (49percent) expressing significantly high concern, while 17percent of survey respondents are not concerned at all,” as reported by Gallup.

Gallup issued a statement, stating, “The majority of Pakistan’s businesses have ‘no hope at all’ in caretaker Prime Minister Anwaar-ul-Haq Kakar’s ability to prevent a potential default on international financial obligations, according to the latest survey.”

The survey results identified that the most pressing issues for businesses were rising inflation, inflated power bills, rupee devaluation, increased petroleum product prices, and taxation.

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While the future business situation score improved by two percentage points in the second quarter of 2023, it remained at an overall reading of negative 20 points. Similarly, the current business situation score and the score for the country’s direction improved but remained deeply negative.

Business owners expressed less pessimism about current conditions but were predominantly negative about future prospects and the direction Pakistan is heading. The report attributed this persisting business insecurity to ongoing economic and political crises.

The survey revealed that backbreaking inflation was the most critical problem that businessmen wanted the caretaker government to address, as it had significantly eroded people’s purchasing power and kept interest rates at record highs in recent months. The plummeting value of the rupee and tax impositions were also issues that businesses hoped the government would tackle.

The number of businesses experiencing power outages increased by 25 percent in this quarter, with 69 percent reporting power outages.

Half of the surveyed businesses reported laying off employees due to challenging business conditions in the quarter under review, reflecting a 13percent increase compared to the previous quarter.

When asked about their current and future business situations and the direction of the country, businessmen held negative views on all three fronts.

The report noted, “While the overall negative trend persists, this indicates a marginal improvement in business confidence compared to the first quarter.”

Business owners remained pessimistic about the future of their businesses, with 60% expressing negative expectations for this quarter. Only 40 percent were optimistic about improvements.

Similar to the previous two quarters, 88 percent of business owners and managers believed that Pakistan was heading in the wrong direction. The report highlighted that the Direction of the Country Score had decreased to -79 percent, four percentage points lower than the previous quarter.

Half of the surveyed businesses reported increasing their output prices during the quarter under review, although fewer businesses raised prices compared to the first quarter.

This survey marked the 10th edition of Gallup Pakistan’s quarterly Business Confidence Survey, which covered approximately 560 businesses across the country.

The Business Confidence Index serves as a vital gauge of the sentiments within the business community and is used worldwide by policymakers.