ISLAMABAD: In a worrying development, the large-scale manufacturing (LSM) sector – which accounts for nearly a fifth of the country’s economic growth – shrank for the eighth consecutive month.
The data released by the Pakistan Bureau of Statistics (PBS) shows that the contraction rate increased to 11.59 percent in February compared to the same month last year.
This decline is a major concern for the country’s economy as the gross domestic product (GDP) growth this fiscal will also suffer a significant setback due to the dismal performance of the LSM sector.
Industrial production witnessed a decline of 5.56 per cent in the first eight months (July-February) of the current financial year 2022-23 as compared to the corresponding period of the previous financial year. During the previous month (January), LSM production decreased by 0.5%.
Both domestic and global factors have contributed to the decline, including higher energy prices, depreciation of the rupee and tightening monetary and fiscal policies by the government. Imports of these factors are limited due to lack of dollar which contributes to the negative growth of this sector.
The global economic slowdown has added to the woes of industries in Pakistan, with many businesses downsizing or reducing working hours, while others have closed their plants. The ongoing economic and political instability in Pakistan has also been linked by independent political economists to the decline in industrial production.
Uncertainty in the country has led to a drop in investor confidence, which has resulted in a decline in manufacturing activities.
Furthermore, the government’s inability to provide a stable and conducive environment for business has worsened the situation, with investors reluctant to invest long-term in the country. Combined, these factors have contributed to the continued deterioration of the LSM sector, which may affect Pakistan’s overall economic growth.
The LSM sector has seen a decline in production from August 2022 to February 2023, the breakdown shows:
- 0.02% decline in August,
- 2.7% decline in September,
- 7.63% decline in October,
- 6.15% drop in November,
- 3.51% decrease in December,
- 7.9% contraction in January 2023.
- 11.59% decline in February
Production in all major and minor sectors contracted in February, including textiles, food, coke and petroleum products, chemicals, automobiles, pharmaceuticals, cement, fertilizers, iron and steel, furniture, leather products, electrical appliances, and non-metallic minerals. Products.
To deal with rising inflation, which reached 35.4 percent in March, the State Bank of Pakistan (SBP) raised the discount rate to 21 percent. From July 2021, when inflation was at 7%, the bank has tripled the rate, or 1,400 basis points, making bank financing more expensive, hampering industrial activity.
In FY22, Pakistan’s LSM sector grew by 11.7% over FY21, supported by rising global demand and favorable government policies to boost GDP growth, with large industries contributing significantly to the economy.
According to PBS data, the following industries saw significant declines in February on a year-over-year basis:
- Textiles — 19.67%,
- Pharmaceuticals — 25.47%,
- Food — 2.43%,
- Garments — 2.99%,
- Non-metallic minerals — 1.33%,
- Iron and steel — 9.19%,
- Chemicals — 14% (of which chemical products output was up 2.96% while fertiliser was down 25%)
- Football output — 17.3%
- Machinery and equipment output — 28.45%,
- Automobiles — 64%,
- Computer, electronics, and optical products — 39.7%;
- Furniture — 12.7%,
- Cement — 3.4%,
- Wood products —74.85%,
- Tobacco — 10.6%,
- Rubber products — 4.88%,
- Coke and petroleum products — 6.35%,
- Leather products — 1.6%,
- Other transport equipment output — 31.2%,
- Cotton cloth — 17.7%,
- Cotton yarn by 30.1%
During July-February FY 2022-23 compared to the same period in FY22, only garments grew by 35.5%, leather by 3.85%, furniture by 58.45%, and football by 35.8%.
During these eight months of the current financial year, the production of the following industries declined:
- Food output — 1.95%,
- Beverages — 6.14%,
- Tobacco — 20.4%,
- Textiles — 14%,
- Wood products — 68.65%,
- Paper and board — 3.4%,
- Coke and petroleum products — 9.4%,
- Pharmaceuticals —22.4%,
- Rubber products — 7.3%,
- Non-metallic mineral products — 9.1%,
- Computer, electronics, and optical products — 25%,
- Machinery and equipment — 38.6%,
- Automobiles — 38.6%.
- Cement — 11.8%,
- Iron and steel — 3.9%
- Fabricated metal — 12.8%
