Large Scale Manufacturing Industry: Contraction in LSM growth continues

Experiences negative growth for fourth consecutive month despite govt’s efforts

ISLAMABAD: The growth of large-scale industries witnessed a contraction for a fourth successive month, going down by 2.59% in July over June of this year, and endangering prospects of achieving the 5.7% overall economic growth target the government is expecting to meet on the back of robust growth in manufacturing and services sector.

With agriculture taking a hit and chances of recovery bleak, economic managers are banking on industrial growth to help spur GDP growth that would still be below the level required to create sufficient jobs.

The large-scale manufacturing (LSM) sector contracted 2.6% in July over June, reported the Pakistan Bureau of Statistics Wednesday. It was the consecutive fourth month that the large industries experienced contraction on a month-on-month basis, although there was decent growth of 2.62% year-on-year in July, suggesting an even poor performance in 2015.



The latest contraction means the sector was off to a sluggish start to the new fiscal year and if the trend continues in coming months, this could disturb the overall macroeconomic indicators. Large industries not only significantly contribute to overall national output but also are a major source of government’s tax revenues. 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 Asian Development Outlook - Update 2016, which the Asian Development Bank released on Monday, has updated its forecast of Pakistan’s Gross Domestic Product (GDP) growth to 5.2% - up 0.4% for 2017. Similarly, for 2016, the growth forecast has been recalibrated to 4.7% from 4.5%. In its flagship publication, the ADB noted that Pakistan’s economy would grow more than earlier estimates because of robust performance in manufacturing and services, which would compensate weakness in agriculture sector.



The ADB said that reviving agriculture, improving productivity, increasing exports and attracting investment, strengthening public enterprises, and improving the business and regulatory environment are the key challenges for Pakistan’s economy.

It seems that the ADB overlooked the contracting LSM sector while upgrading its growth estimates for Pakistan.

The government has targeted achieving 5.7% growth rate in this fiscal year - one percentage point higher than last year’s provisional GDP estimates of 4.7%.

The LSM sector grew only at a pace of 3.2% during fiscal year 2015-16 ended June 30. For this year, the government has set the LSM sector growth target at 5.9%.

Even in the last fiscal year, only three subsectors like automobile and fertilisers posted healthy growth while rest of the subsectors saw only 0.5% growth, said Sakib Sherani, former principal economic advisor of Ministry of Finance.

The International Monetary Fund has recently termed the slowdown in growth of large-scale manufacturing as a potential source of concern.

Out of 112 industries that are monitored for compiling LSM growth data, as many as 47 witnessed contraction in July over June, according to the PBS. The average growth of eleven oil sector industries posted a negative growth of 0.1% during July. Out of eleven industries, as many as five-witnessed contraction, notably, petroleum production, lubricant oils, diesel and kerosene oil.



A total of 36 industries monitored by the Ministry of Industries saw a contraction of 2.4% on average while the provincial bureaus reported 0.3% contraction. The LSM industries results were somehow more 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 large industries preference in paying tax refunds.

Out of 36 Ministry of Industries-monitored industries, as many as 13 saw contraction, mainly jute goods and production of steel products. The pig iron and coke production plummeted 100% due to closure of Pakistan Steel Mills.

On a monthly basis, the sub sectors of textile, food, beverages & tobacco, coke & petroleum products, chemicals, leather products, engineering products and wood products witnessed decline in their production in July.

However, pharmaceutical, non-metallic mineral products, automobiles, iron & steel products, fertilisers, electronics, paper and board and rubber products saw marginal growth.

Published in The Express Tribune, September 29^th, 2016.

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