By Staff Reporter
ISLAMABAD: Pakistan’s Large-scale manufacturing (LSM) sector is facing an extended period of contraction, with a decline of 11.59 percent in February 2023 as compared to the same period last year, Pakistan Bureau of Statistics (PBS) data showed.
The decline has continued for the past eight months and is a significant concern for the country’s economy, as the LSM sector accounts for almost one-fifth of its economic growth. The poor performance is expected to significantly impact Gross Domestic Product (GDP) growth this fiscal year.
Analysts said the decline in the LSM sector can be attributed to both domestic and global factors.
High energy costs, rupee devaluation, and the government’s tightening of monetary and fiscal policies have limited imports due to a lack of dollars, contributing to the negative growth of the sector.
Pakistan’s State Bank has raised the discount rate to 21 percent to combat soaring inflation, which was 35.4 percent in March 2023. Since July 2021 when inflation was at 7 percent, the bank has raised the rate by threefold or 1,400 basis points, hindering industrial activities by making bank financing more expensive.
The ongoing global economic slowdown has added to the woes of industries in Pakistan, with many businesses scaling back operations or reducing operating hours, while others have shut down their plants.
The ongoing economic and political instability in Pakistan has also been linked to the decrease in industrial output. The uncertainty in the country has led to a decrease in investor confidence, resulting in a slowdown in manufacturing activities.
The government’s inability to provide a stable and conducive environment for businesses has further worsened the situation, making investors hesitant to invest in the country.
These factors have contributed to the ongoing nosedive of the Large-scale manufacturing (LSM) sector, which could impact Pakistan’s overall economic growth.
The LSM sector has witnessed a decline in production from August 2022 to February 2023, with all major and small sectors’ output contracting in February.
The textile, food, coke and petroleum products, chemicals, automobile, pharmaceuticals, cement, fertilizers, iron & steel, furniture, leather products, electrical equipment, and non-metallic mineral products sectors all experienced a decrease in output.
On a year-on-year basis, in February 2023, textiles output was down 19.67 percent, pharmaceuticals 25.47 percent, food 2.43 percent, garments 2.99 percent, non-metallic minerals 1.33 percent, iron and steel 9.19 percent, chemicals 14 percent (of which chemical products output was up 2.96 percent while fertilizer down by 25 percent) and football output down 17.3 percent over the same month last year.
In FY22, Pakistan’s LSM sector grew by 11.7 percent over FY21, aided by rising global demand and favorable government policies to boost GDP growth, with big industries contributing a significant portion to the economy.
However, the sector has struggled since then, and in FY23, it declined by 5.56 percent in July-February compared to the same period of the last fiscal.
Output during July-February FY23 as compared to the same period of FY22 has only increased in wearing apparel (garments), leather, furniture, and football. Whereas food output in these eight months declined 1.95 percent, beverages 6.14 percent, tobacco 20.4 percent, textiles 14 percent, wood products 68.65 percent, paper and board 3.4 percent, coke and petroleum products 9.4 percent, pharmaceuticals 22.4 percent, rubber products 7.3 percent, non-metallic mineral products 9.1 percent, computer, electronics, and optical products 25 percent, machinery and equipment 38.6 percent, automobiles 38.6 percent, cement 11.8 percent, iron and steel 3.9 percent, and fabricated metal output by 12.8 percent.
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