Survey reveals Pakistani businesses fear default
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In a recent Gallup survey conducted in the second quarter of 2023, the majority of Pakistan's businesses have expressed profound concerns regarding the country's ability to avoid a potential default on its international financial obligations. This apprehension persists despite Islamabad's recent success in securing a $3 billion bailout package from the International Monetary Fund (IMF), which temporarily staved off an imminent crisis.
The survey, encompassing more than 500 businesses across Pakistan, revealed that an alarming 72% of respondents expressed grave concerns regarding Pakistan's potential default, shedding light on the lingering economic uncertainties in the nation. Of these respondents, 49% indicated a significantly high level of concern, while 17% displayed no concern at all, as revealed by the Gallup Pakistan Business Confidence Index Q2 2023 report.
Surprisingly, the survey also indicated that the business community was slightly less pessimistic about their own businesses' fate compared to the previous quarter, despite the ongoing crises, escalating inflation, and rising power costs. Inflation, utility bills, and rupee devaluation topped the list of growing concerns among business owners.
However, business owners remain predominantly pessimistic about future prospects and the overall direction in which Pakistan is heading. The survey points to persistent business insecurity due to the prevailing economic and political crises. The relentless inflation, in particular, has been cited as a critical issue, with business owners urging the caretaker government to address this problem as it erodes people's purchasing power and keeps interest rates at a record high.
The sharp depreciation of the Pakistani rupee and the imposition of taxes also featured prominently on the list of concerns that businesses want the government to tackle. Additionally, the survey highlighted a 25% increase in businesses facing load-shedding during the quarter, with 69% confirming power outages. A particularly distressing finding is that half of the businesses surveyed reported having to lay off employees due to the challenging business conditions, representing a 13% increase compared to the previous quarter.
When questioned about their current and future business outlook, as well as the country's direction, the respondents overwhelmingly expressed pessimism. While these negative sentiments persist, there was a marginal improvement in business confidence compared to the first quarter, as indicated by slight percentage point increases in various aspects.
Notably, despite economic insecurity, the current business situation score on Gallup's second-quarter Business Confidence Index improved by two percentage points. However, this improvement did not offset the overall negative sentiment. Concerns regarding the future were equally pronounced, with 60% expressing negative expectations for their businesses. Only 40% held optimistic views, leading to a Net Future Business Confidence score of -20%, marking a 2% improvement since the beginning of the year. Reflecting a consistently grim outlook, 88% of business owners and managers believed that Pakistan was heading in the wrong direction, a sentiment echoed from previous quarters. The Direction of the Country Score dropped to -79%, a decrease of four percentage points compared to the last quarter.
In response to the economic challenges, half of the surveyed businesses increased their output prices during the quarter, albeit fewer than in the previous quarter. More businesses opted to reduce their output prices as they navigated the tumultuous economic landscape.
This survey is the 10th edition of a quarterly Business Confidence Survey conducted by Gallup Pakistan, aimed at capturing the sentiments of the business community in the country. The Business Confidence Index, used by policymakers worldwide, underlines the challenges and concerns of Pakistan's business sector. The survey involved approximately 560 businesses from across Pakistan. Despite the temporary respite provided by the IMF bailout, it is clear that Pakistan's business community remains deeply apprehensive about the nation's economic future, emphasizing the need for comprehensive measures to address the underlying issues.
