Businesses Fear Default as Confidence Plummets Amid Economic Woes

Web DeskSeptember 5, 2023

A recent survey conducted by Gallup Pakistan reveals that despite Pakistan securing external loan payback arrangements through the International Monetary Fund (IMF) loan program, a majority of businesses in the country remain deeply concerned about the risks associated with defaulting on foreign debt repayments. These concerns are compounded by soaring inflation, reduced energy bill subsidies, and a devalued currency.

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The survey, which included over 500 businesses, found that nearly half of them had to resort to cost-cutting measures to survive the inflationary environment during the second quarter of 2023. It also revealed that 72% of the surveyed businesses were concerned about Pakistan’s potential default, with 49% expressing significantly high concern.

While Pakistan secured an IMF lifeline of $3 billion in late June 2023, bolstering foreign exchange reserves to $8.72 billion by mid-July, the reserves have started depleting again. The return of the current account to a deficit in July, compared to a surplus in previous months, resulted in reserves dropping to $7.85 billion as of August 25.

Experts offer reassurance that the risk of an immediate default is low due to Pakistan’s participation in the IMF loan program, which has helped stave off default temporarily. However, they caution that default may loom within the next two years if the country fails to reschedule or re-profile its mounting foreign debt.

The survey also reflected a lack of confidence in the caretaker government’s ability to resolve these issues. Rising inflation was cited as the most pressing problem for businesses, followed by inflated power bills, rupee devaluation, increased petroleum prices, and taxation.

While there was a slight improvement in the future business situation score during the second quarter of 2023, the overall reading remained negative at -20 points. Business owners remained pessimistic about future prospects and the country’s direction, with 88% believing Pakistan is heading in the wrong direction.

The survey’s findings highlight the challenges businesses face in Pakistan’s economic and political landscape and their urgent call for solutions to address these issues.

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