Pakistan’s Business Optimism Index Takes a Big Hit

Business optimism has declined across the board in Pakistan, with the trading sector registering the biggest decline in optimism.

This was the conclusion of Dun and Bradstreet Pakistan’s ninth edition of the “Business Optimism Index” (BOI) report for the fourth quarter of 2021 (4Q2021). The BOI declined after increasing consecutively for the previous three quarters, indicating a decline in optimism among the business community regarding the performance of their business in 1Q2022.

The BOI registered 143.9 points in 4Q2021 compared to 154.2 points in 3Q2021, indicating a decline of 6.7 percent decline quarter-on-quarter (QoQ). However, the BOI has improved by 7.9 percent compared to the same period last year.

The report said that the decline in optimism was driven by the overall downtrend in the macroeconomic indicators.

“High inflation rate of 12.3 percent in December 2021, the widening of the current account deficit by 57.9 percent, increased policy rates from 7.25 percent to 9.75 percent, depleting foreign exchange reserves from $25.6 billion to $24 billion, and depreciation of the Pakistani Rupee against the US Dollar by 4.5 percent during Q4 2021, may have affected the business community and impacted their business outlook,” the report noted.

The sector-wise comparison showed that the trading sector BOI exhibited the highest decline of 18.7 percent QoQ, the BOI declined from 160.9 in 3Q2021 to 130.9 in 4Q2021. However, the index increased by 5.3 percent year-on-year (YoY). The report attributed the decline to COVID-19 related supply chain disruptions in anticipation of the spread of the Omicron variant in 1Q2022.

The manufacturing sector index decreased by 3.5 percent QoQ, the BOI declined from 147.0 in 3Q2021 to 141.8 in 4Q2021. However, the index increased by 8.0 percent YoY. Similarly, the services sector index decreased by 4.4 percent QoQ, the BOI declined from 157.1 in 3Q2021 to 150.2 in 4Q2021. However, the index increased by 5.3 percent YoY.

The index-wise comparison showed that large business BOI declined from 162.5 in 3Q2021 to 146.2 in 4Q2021. The report attributed the decline to the outbreak of the Omicron variant, and an increase in inflation and policy rates, which is likely to affect the overall consumer demand in the next quarter.

The small and medium enterprises (SMEs) index decreased marginally to 140.5 in 4Q2021 from 141.9 in 3Q2021. The report noted that over 40 percent of SMEs and large companies cite the increase in inflation and interest rates as the key challenge to business growth.

The exporter’s index also declined marginally from 155.0 in 3Q2021 to 154.0 in 4Q2021. The USA, UK, and UAE were identified as top export destinations for businesses.

‘Inflation and high-interest rates’ replaced ‘business disruptions due to COVID-19’ as the top challenges in Q42021 after the latter being at the top for the six previous quarters, the report noted. The rising cost of utilities, less demand for products & services, business regulations, the availability of skilled labor, higher completion, exchange rate fluctuation, government taxes, and high cost of finance are among the other challenges.