According to the OICCI’s Business Confidence Index (BCI) Survey Wave 29, there was a marked deterioration in business sentiment in Pakistan during the second quarter of 2026. The overall BCI score fell by nine percentage points from the previous survey to 13 per cent. According to the survey, the decline in business confidence was largely driven by elevated inflationary pressures, intensifying cost pressures and contributing to a more cautious business outlook. Pakistan’s inflation rate crept back into the double digits in April and reached 11.7 per cent in May, a 22-month high. The survey, conducted face-to-face across the country, includes participants representing almost 80 per cent of the country’s GDP. The sample comprised 43 per cent respondents from the manufacturing sector, 34 per cent from the services sector and 23 per cent from the retail/wholesale sector. The services sector index dropped significantly from a positive 34 per cent in Wave 28 to 14 per cent in Wave 29, followed by the manufacturing sector, which declined by seven percentage points. Surprisingly, the retail sector was the only one to show an improvement in confidence, with its index climbing by three points.
It is not exactly a surprise that business confidence has deteriorated in recent months. The Middle East conflict and the resulting energy shock mean that one is unlikely to find many businesses feeling confident anywhere on the planet right now, unless they are an AI company. But what the BCI survey says about businesses’ future outlook may be even more troubling. Looking ahead, 34 per cent of respondents expect business conditions to worsen over the next six months, up sharply from 22 per cent in Wave 28. Political instability, fuel prices and inflation were identified as the key concerns, with political instability coming out on top. The ongoing budget delay, with the government seemingly trying to push through important changes in the last minute and their own allies pushing back, only serves to justify these concerns and shows that the Middle East conflict is not the only thing giving businesses pause. Already, investment intentions have weakened significantly, with the New Investment Index dropping by 10 points to just 2.0 per cent and around 70 to 80 per cent of businesses delaying or revising investment decisions and diversifying supply chains to reduce exposure to routes affected by the Middle East conflict.
Sadly, the direction that the Middle East conflict will take is largely outside of the country’s control. In this sense, it is hard to give businesses a reason to be more positive about the future and one should perhaps be grateful that business confidence has not slipped into negative territory, as it had in years past. However, it is unclear what Pakistan can do to revive business confidence, at least in the short term. The country does not exactly have much fiscal room or forex reserves to buffer the ongoing inflationary shock. Further hikes in the policy rate are unlikely to be kindly received by businesses and, at least right now, it does not seem likely that the next budget will bring much relief. The scale of the problem is emphasised by the fact that even much stronger economies like India are now beginning to feel the serious pinch of the energy shock. Structural reforms are the main solution offered for most of our economic woes, but the gains from those will not materialise over the next six months. This might just be a tough period that the country somehow has to ride out.
