Production in major industries increased marginally by less than 1% in the first quarter of this fiscal year, as the industrial sector continually suffered from high interest rates and overall unfavorable business conditions.
The Pakistan Bureau of Statistics (PBS) on Wednesday released figures for large-scale manufacturing (LSM) which also showed that the upward movement of the index reversed in September. The LSM sector contracted by 3.6% in September compared to the previous month, according to the national data collection agency.
According to the released data, the growth pace of LSM industries increased marginally by 0.7% during the July-September quarter compared to last year. It was positive 1% on an annual basis.
The figures were released days before the scheduled meeting of the National Accounts Committee which is due to approve the overall economic growth figure for the first quarter. Pakistan has committed to the International Monetary Fund (IMF) to publish the GDP growth figure on a quarterly basis. The deadline is the end of November.
The National Accounts Committee would also revise the previous fiscal year’s controversial 0.3 percent economic growth rate, which international financial institutions and independent economists have not accepted.
These moderate trends suggest that the industrial sector has been hit hard by the country’s highest-ever interest rates, tight capital and import controls, and strong inflationary pressures that keep the cost of doing business too high. for a longer period.
Sources said discussions were held within official circles to reduce interest rates from their current level of 22% at the next monetary policy committee. However, they said there were divergent inflation forecasts from the IMF and the central bank, which could lead to maintaining the status quo at least in the next monetary policy.Economy slides into stagflation: Pakistan posts meager GDP growth of 0.29%
The sharp currency devaluation has also made raw materials expensive and made business models unviable. The rupee exceeded Rs 288 per dollar on Wednesday, with the exchange rate regime remaining very unstable.
During the IMF assessment negotiations, the Finance Ministry had told the lender that the overall economic growth rate could remain between 3% and 3.5% thanks to better growth prospects in the agricultural and industrial sectors.
The industrial sector accounts for around 18.5% of the economy and is expected to grow by 3.3% this financial year. The Finance Ministry’s expectations for healthy dynamics in the industrial sector were based on some signs of improvement in major industries during the first two months of the fiscal year.
The LSM had posted a positive growth of 2.5% in August after 14 months, but the momentum stopped in September with a negative growth of 3.6%.
During the July-September quarter, 11 out of 22 sectors witnessed positive growth, including food, beverages, clothing, leather products, coke and petroleum products, chemicals, pharmaceuticals , non-metallic mineral products, machinery and equipment, as well as football.
In July this year, the IMF had estimated that the pace of negative growth in major industries could have been slower if the government had not imposed restrictions on imports.
Since large industries contribute largely to revenue collection and job creation, any change in their growth impacts government and business confidence at all levels.
The main contributors to the overall negative growth are tobacco, textiles, wood products, paper and cardboard, rubber products, steel products, computer, electronic and electrical equipment, automobiles, transport equipment and furniture.
Published in The Express Tribune, November 16th2023.