IT is hard to weigh the signs of ‘early economic recovery’ seen in July against the significant loss of business confidence as computed by a business organisation on the basis of a half-yearly survey, and come up with an answer to the question: are we moving in the right direction? The Overseas Investors Chamber of Commerce and Industry informs us that the overall business sentiment has worsened because of the “huge scare caused by the coronavirus pandemic”. Even before the virus had reached Pakistan, business confidence was already declining owing to a combination of factors including massive currency devaluation, high interest rates, steep inflation and the IMF-mandated economic stabilisation policies. The Covid-19 lockdowns and uncertainty had only compounded economic woes with businesses seeing sales slump and profits shrink as domestic and foreign demand crashed, throwing tens of thousands of people out of work.

The forecasts of a slower and painful recovery notwithstanding, July — the first month of the fiscal year — saw a substantial surge in domestic demand, especially in the construction and rural sectors. Cement sales have gone up sharply underscoring a recovery in the construction business. Tractors, motorcycles and farm inputs too are in greater demand indicating improved rural income levels. Carmakers expect their sales to recover over the next six to 12 months. Imports are rising. FBR tax collection has far surpassed the target for the month. Even exports have increased, though only marginally. The stock market is bouncing back. And so on. Based on this data, many are predicting a much quicker recovery going forward than what was previously forecast. But the question remains: is this recovery sustainable given the fact that much of it is caused by fiscal and monetary incentives given to mitigate the virus impact on businesses and reboot construction activity? With infections apparently declining much faster than expected, the government wants to completely reopen the economy in the next few weeks. That will have a salutary impact on the economic activity and create consumption-led growth in demand over the short term. Yet long-term economic recovery requires sustained growth momentum. That largely depends on how the government deals with the structural impediments to new investments in the manufacturing sector to boost exports, and if it still has the appetite to implement policy reforms, including, but not limited to, reorganisation of its tax system and energy sector, to improve the poor business environment.

Published in Dawn, August 7th, 2020