New data: Growth of LSM sector overestimated

PBS data says manufacturing sub-sector grew at 3.2%, not 4.61% in FY16

ISLAMABAD: The pace of growth in large-scale manufacturing industries slowed down to 3.2% in the last fiscal year, far lower than what initial estimates suggested and even below the rate the country achieved in the previous year, reported the Pakistan Bureau of Statistics (PBS) on Tuesday.

Almost all major industries either witnessed nominal growth or saw contraction, according to data released by the national statistics agency. The PBS said that the LSM grew at a pace of 3.2% during July-June period of fiscal year 2015-16, ended June 30. Earlier, the government had estimated the growth in the sector at 4.61%.

The slowdown in growth of large-scale manufacturing is a potential source of concern, said International Monetary Fund’s Resident Representative, Tokhir Mirzoev.



Mirzoev said that a lower level of economic activity in the fourth quarter of the last fiscal year was to some extent expected, reflecting seasonal patterns. He said data will need to be monitored over the next few months to assess whether the slowdown is temporary. In any case, volatility of growth in LSM underscores the importance of advancing reforms aimed at strengthening the SME and export sectors to secure a broad-based medium term growth momentum, added Mirzoev.

Consequences

Lower than estimated pace of growth would also slightly affect the overall Gross Domestic Product growth rate of 4.7% for the last fiscal year, denying government the claim that it achieved an eight-year high economic growth rate last year, according to official economic experts.  It is now estimated that the economic growth rate would nominally come down to below 4.5% due to the revised LSM growth.

The latest LSM results also showed that the momentum of upward growth reversed last year. In fiscal year 2014-15, the LSM grew at a pace of 3.3%. The LSM, at 10.9% of the GDP, dominates the overall industrial sector, accounting for 80% of the sectoral share, according to the Economic Survey of Pakistan.

The LSM results for the last fiscal year have strengthened the views of those who are suspecting that the government fudged figures to claim quicker economic recovery.

A 3.1% LSM growth rate has punctured the story of economic recovery propagated by International Monetary Fund and the Finance Ministry, said Dr Ashfaque Hasan Khan, a known critic of the government’s economic policies.

Past qualms

There were suspicions that the statistics authorities tinkered with the LSM data from November 2015 to March 2016 to show better results at the time of National Accounts Committee (NAC) meeting. After March, the LSM data showed an altogether different trend. The month-on-month LSM manufacturing results were more depressing than last year’s average growth rate in the sector. The LSM posted negative growth of 2.62% in June over May of this year. On annual basis, the growth in the LSM was almost flat at 0.01% in June over the same month of the last year.

The average growth of eleven oil sector industries posted negative growth of 0.1% during the last fiscal year. The Ministry of Industries-monitored factories saw an average growth of about 2% while the provincial bureaus reported only 1.28% growth rate. The LSM industries results were somehow disappointing, as the government ensured round the clock availability of electricity by cutting power supplies to small and medium-sized industries and households. It also gave the large industries preference in paying tax refunds.

During the last fiscal year, the sub sectors of petroleum products, iron and steel products, electronics, paper and board, engineering products and wood products witnessed negative growth. The growth in the textile sector that has about 21% weight in the overall LSM sector remained flat at 0.1%.

Published in The Express Tribune, August 24^th, 2016.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.