Pakistan's LSM sector contracts 6% in January

Big businesses bearing the brunt of very high interest rate

Shahbaz Rana March 19, 2020
Representational image. PHOTO: REUTERS

ISLAMABAD: The growth in Pakistan’s big industries once again dipped in January 2020 as large-scale manufacturing (LSM) contracted 6% over the same month a year ago amid across-the-board criticism of the central bank’s business-as-usual approach, which may cause more economic slowdown.

LSM output shrank 5.96% in January over the same month of last year, the Pakistan Bureau of Statistics (PBS) reported on Wednesday. In December, the LSM had bounced back and recorded 10% growth but it proved to be short-lived.

Overall, the LSM sector registered a negative growth of 3.4% in July-January of current fiscal year 2019-20, according to the national data collecting agency.

Some of the adverse impact of the dip in yearly growth was offset by 7% growth in the LSM sector on a month-on-month basis. As compared to December last year, the LSM sector showed 7% growth in January, stated the PBS.

PBS is the most important national data agency but the Pakistan Tehreek-e-Insaf (PTI) government has failed to appoint professionals to run its affairs.

PBS is being run on an ad hoc basis by the Ministry of Planning and Development. Many key posts including those of chief statistician, who happens to be in charge of the organisation, member survey and census, and member economic statistics remain vacant.

Large businesses are bearing the brunt of very high interest rate. The State Bank of Pakistan (SBP) on Tuesday announced a reduction of just 0.75% in the key policy rate to 12.5% while ignoring adverse implications of the coronavirus pandemic and the demand from all business segments for a steep rate cut.

Pakistan Business Council (PBC) - the representative group of big businesses - on Wednesday termed the 0.75% rate cut “too little too late”.

The PBC urged the government and the SBP to act swiftly and meaningfully to protect the already ailing Pakistan’s economy, according to a statement issued by the lobbying group.

It added that the Monetary Policy Committee’s statement made no mention of the flight of over $1 billion from Pakistan’s debt market.

“Holding local industry hostage to high borrowing rates to retain foreign debt comes at the cost of loss of jobs, profit and tax revenue,” said the PBC.

Pakistan is de-industrialising, with the manufacturing sector’s contribution to GDP declining each year. “In a period of crisis, it is all the more important that monetary and fiscal policies work together to alleviate the economic stress,” it added.

The federal cabinet on Tuesday approved a budget strategy paper for fiscal year 2020-21 that envisaged continuation of the tight monetary and fiscal policies, which would keep overall economic growth around 3%. The cabinet has approved 3% growth target for the next fiscal year.

“We think the measures announced by the State Bank such as credit for hospitals and low-cost credit for manufacturing fall far behind the appropriate response,” stated KASB Research in a note to investors. “The crisis will require a far more direct fiscal response from the government.”

PBS data showed that out of 15 major industries, eight recorded some growth while the output in seven industries contracted in the July-January period.

Data collected by the Oil Companies Advisory Committee (OCAC) showed that 11 types of industries registered average negative growth of 0.7% in the first seven months of current fiscal year. In January alone, the OCAC-monitored industries reported 0.6% negative growth.

The Ministry of Industries, which monitors 15 industries, reported 2.1% decline in the growth of these industries. In January 2020, the ministry reported a contraction of 3.3% over the same month of last year.

Similarly, the provincial bureaus reported 0.6% contraction in 11 industries in first seven months of the current fiscal year. The provincial bureaus reported that these industries contracted 2% in January.

Sectors that posted growth in July-January FY20 included textile, which grew just 0.3%, fertiliser which registered growth of 4.5% and non-metallic mineral products which recorded 1.7% growth.

The manufacturing of leather products recorded 11.1% growth, rubber products 2%, wood products 25% and paper and board 6.8%. Production of food, beverages and tobacco increased 1.9%. Industries that were producing seven major types of goods recorded a dip in their manufacturing activity during July-January of the current fiscal year.

Production of coke and petroleum products decreased 10.3%, pharmaceuticals 5.7%, chemicals 3.2%, automobiles 36%, iron and steel products 9.25% and electronics 8.5%. Engineering products registered a negative growth of 3.6%.

Published in The Express Tribune, March 19th, 2020.

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