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In Pakistan, economic slowdown creates pessimism among firms

By Shahram Haq

The slowdown in Pakistan’s economy over the last two years has created a negative perception amongst different businesses, especially in Punjab’s provincial capital region.

Lahore, the country’s second largest city, has managed to become a hub of diversified businesses on the back of investments worth billions of rupees from previous governments in urban and industrial infrastructures.

Nevertheless, the current economic scenario has sparked a wave of uncertainty across different sectors throughout Pakistan and Lahore is no exception.

A business confidence survey, conducted by the Innovation and Technology Centre of the Lahore School of Economics, has revealed some alarming results.
The survey has targeted three different sectors, which include manufacturing, services and retail and was conducted with 500 large, medium and small-sized firms registered with the Lahore Chamber of Commerce and Industry. All these sectors performed well in recent years.

In the survey, entrepreneurs shared their concerns about the prevailing business conditions by shedding light on a number of key business parameters such as a firm’s revenues, investment, employment levels and perceptions about the performance of the Pakistan economy over a period of eleven months (October 2018-August 2019).

Increases in the index suggest an improvement in how the firms are performing whereas decreases indicate deterioration in the performance. The overall business confidence index combines all of the individual indices and an increase in the business confidence index shows greater optimism about the economy.

The timeline of monthly index shows that there is an overall decline in the index, which is mainly due to the deteriorating perceptions amongst the business community about the performance of the Pakistani economy.

At the firm level, the most significant decrease was in the employment index, which shows that overall employment in the businesses has fallen. The investment index also shows that firms have decreased their investment in the most recent months.

Looking at the indices that looks at future expectations, expectations started out as relatively positive but have fallen dramatically in the last six months. This decline in expectations was mainly due to the negative perceptions about the performance of the economy followed by pessimism about the amount of expected employment levels.

Perceptions from firms about their revenues have also fluctuated significantly. The only real silver lining is that expectations about future investment seem generally positive.

Another monthly index was also composed based on the responses on the level of investment and bank borrowing by the respondent firms. The index shows that investment has fluctuated and after an increase in the early months of the year, there has been a fall in recent months. The index also shows that while bank borrowing by firms fell dramatically over the early months of 2019, there has been a slight recovery over the summer months.

The third monthly index was constructed plotting firms’ responses about revenues, employment levels and the perceptions about the performance of the Pakistani economy. This index shows that all three parameters decreased significantly; however, the largest drop was seen in the perception about the performance of the Pakistan economy reaching the lowest level in July 2019.

Whereas, revenues fell but have shown a slight improvement after June, 2019.

The overall business confidence was measured by combining the indicators for sales, investment, employment and overall economic condition. The business confidence showed a decline as compared to the previous year.

Sector-wise comparison of indices showed that the decline in business confidence is mainly coming from the retail sector which was most optimistic during the previous years. Similarly, the manufacturing sector and exporting firms have shown significantly higher pessimism as compared to the previous year.

On the whole, the survey showed that firms remained sceptical of many of the recent economic reforms.

Also published in The Express Tribune, December 29th, 2019

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posted by S A J Shirazi @ 12/30/2019 12:17:00 PM,

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