Manufacturing output

SBP had estimated the economy to grow by 3.5% in the current fiscal year. Even this modest goal looks ambitious now


Editorial December 21, 2019

Economic concerns remain around the state of large-scale manufacturing, with output shrinking for almost the entire calendar year. While problems in early months could be blamed on existing economic instability, government planners had predicted that FY2019-20 would bring renewed growth. Instead, output shrank 6.5% in the first four months of the fiscal year. The decrease actually got worse as the months progressed — 8% in October — according to the Pakistan Bureau of Statistics. Experts are citing higher production costs as a significant factor in the decline. This is also worrying because the increased costs are being attributed to the rising cost of energy and working capital after interest rates doubled. Both of these were supposed to be measures to stabilise the economy when they were announced by the government.

The government’s policies are not helping. It plans to hike gas prices by 214% next month after its previous increases totalling 161%. And despite the economic slowdown, growing poverty and unemployment, the central bank kept its key policy rate unchanged at 13.25 per cent in its most recent monetary policy announcement in November. The government has tried to highlight some sectors that are still doing well, including construction. But that is directly a result of government spending on development projects, rather than any stimulus policies. Consumer goods manufacturing, however, is down or flat in most significant categories.

Also, the Monetary Policy Committee may have been attempting to make a false claim about rising domestic demand, according to a report in this paper. The Committee took the increase in sales tax revenue in the first two months of FY2019-20 as a sign of recovery of domestic demand. But the ‘growth’ was actually due to the delayed release of tax refunds. The ‘increase’ in sales tax collection was almost equal to the amount that the exporters were claiming in refunds for the current fiscal year — meaning that the Committee was using exports to inflate domestic consumption figures.

The central bank had estimated that the economy would grow by 3.5% in the current fiscal year. Even this modest goal is now looking ambitious.

Published in The Express Tribune, December 21st, 2019.

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