The large-scale manufacturing (LSM) sector, which accounts for nearly one-fifth of the nation’s economic growth, has experienced contraction for the eighth consecutive month. According to data from the Pakistan Bureau of Statistics (PBS), the rate of contraction accelerated to 11.59% in February compared to the same month last year.
This ongoing decline is a significant concern for the country’s economy, as the LSM sector’s poor performance will likely impact gross domestic product (GDP) growth this fiscal year. Industrial output saw a 5.56% decline in the first eight months (July-February) of the current fiscal year 2022-23 compared to the same period of the previous financial year. LSM output also decreased by 0.5% from January.
Domestic and global factors have contributed to this decline, including high energy costs, currency devaluation, and the government’s tightening of monetary and fiscal policies. These factors have restricted imports due to dollar shortages, contributing to the sector’s negative growth.
The global economic slowdown has exacerbated challenges for industries in Pakistan, with many businesses scaling back operations or reducing working hours while others have closed their plants. Economic and political instability in Pakistan has also been linked to the decline in industrial output by independent political economists.
Decreased investor confidence, stemming from uncertainty in the country, has led to a manufacturing slowdown. Furthermore, the government’s inability to provide a stable and conducive environment for businesses has exacerbated the situation, causing investors to hesitate in making long-term investments in the country. These factors have contributed to the ongoing decline of the LSM sector, which could impact Pakistan’s overall economic growth.
To counter surging inflation, which reached 35.4% in March, the State Bank of Pakistan (SBP) increased the discount rate to 21%. Since July 2021, when inflation was at 7%, the bank has raised the rate threefold or 1,400 basis points, hindering industrial activities by making bank financing more expensive.
In FY22, Pakistan’s LSM sector experienced an 11.7% growth over FY21, supported by rising global demand and favorable government policies to boost GDP growth, with large industries contributing significantly to the economy.
