ISLAMABAD - Pakistan Institute of Development Economics (PIDE)’s recent survey noted that federal budget 2012-13 would have a detrimental effect on firm businesses blaming taxes on raw materials, inflation, and energy crisis.

Though businesses continue to operate in a challenging environment with stagnant production and sales volumes they remain somewhat optimistic about their future prospects, says the latest PIDE Business Barometer. Firms that have performed well in terms of production, sales and exports attribute their success to strong demand for their products while firms experiencing sluggish business activity have blamed shortage of utility supplies as a major bottleneck hindering their performance.

Surprisingly, however, energy shortage is not the top most constraint faced by the firms to cope with. Even though firms are optimistic about economic revival, majority of firms have no plans to enhance their productive capacity.

Most of the businesses have reported increase in the prices during first half of the year 2012 and expect them to increase in the second half of the year as well.

However, they expect the inflation to remain in single digits. A slight improvement in the permanent as well as the contractual employment shows little improvement in the labor market. The only significant change is observed in the textile sector where some firms laid off contractual employees.

The laying off of contractual employees is consistent with the decline in the production and sales. On the other hand, slight improvement is expected in both the contractual and permanent employment statuses, especially in the sugar industry. Even though almost all the firms have reported to have a policy to increase wages once a year but not every industry is planning to increase wages. This implies that real wages are going to decline.

The recorded responses of the firms on input prices indicate that they deem the input prices to be too high and expect them to increase further due to irregular availability in the local market and taxes imposed on them.

Firms do not perceive the 2012-13 budget to be investment friendly because, according to them, no specific policy is announced to promote investment while taxes on raw materials remain very high.

Firms’ overall ranking of the business environment remains very low highlighting the need for adopting policies to improve business climate in Pakistan.