THE recent macroeconomic stability — its vulnerability to potential internal slippages and external shocks notwithstanding — has pushed business confidence into ‘positive territory’ for the first time in three years, according to a survey conducted by the Overseas Investors Chamber of Commerce and Industry in March-April, before the escalation of tensions with India. Looking ahead, the survey reported increased optimism for the next six months, with 45pc of the respondents expressing positive expectations due to economic growth, and improved government policies, investment climate and security. Yet they highlighted inflation, taxation, inconsistent government policies and rupee devaluation as “key threats”. Inflation and taxation remain their top two concerns, reflecting unchanged sentiments on this score since the last survey in October-November. The survey results have led the finance minister to claim the improved business sentiment as a “validation of our collective efforts”. “The uptick in business confidence is a clear sign that our economic direction is on the right track. We are focused on creating a conducive environment for investment, supporting private sector growth, and ensuring long-term macroeconomic resilience,” he said.

The ‘positive vibes’ on account of improved business sentiments apart, the fact is that over half the respondents still reported a negative outlook regarding overall business conditions; most continue to hold off on new investment plans because of anxiety linked to political instability, exchange rate parity and energy and trade policies. Our policymakers should be aware of this. While valuable, a business confidence survey — whatever outlook it projects — has its limitations since it relies mostly on the subjective opinions of respondents. Also, a given economic or policy factor can be positive for some and negative for others. For example, the exchange rate devaluation may help some businesses make money but causes losses for others. A country’s economic outlook or business sentiments can be measured reliably only from the size of investment made by firms in new projects or expansions, growth in economic activity and exports, increase in the disposable income of the middle class, job creation, reduced poverty, etc. Since none of these indicators are improving, at least not significantly enough, it is too early to see the survey result as a validation of government policies.

Published in Dawn, May 24th, 2025