The struggling LSM industry is seeing modest growth

Islamabad:

Output of major industries rose marginally by less than 1% in the first quarter of the current fiscal year as the industrial sector continues to suffer from high interest rates and overall unfavorable business conditions.

The Pakistan Bureau of Statistics (PBS) on Wednesday released data on Large Scale Manufacturing (LSM) industries which also showed that the index’s upward movement was reversed in September. The LSM sector shrank 3.6% in September compared with the previous month, according to the national data collection agency.

According to the data released, the growth rate in LSM industries rose marginally by 0.7% in the July-September quarter compared to a year ago. It was up 1% year-on-year.

The figures were released days ahead of an expected meeting of the National Accounts Committee which is set to approve the overall economic growth rate for the first quarter. Pakistan has pledged with the International Monetary Fund (IMF) to publish its GDP growth rate on a quarterly basis. The deadline is the end of November.

The National Accounts Committee will also review last fiscal year’s controversial 0.3 percent economic growth rate, which has been rejected by international financial institutions and independent economists.

The subdued trends suggest that the industrial sector has been badly affected by the country’s higher interest rates, tight capital and import controls and high inflationary pressures that have kept the cost of doing business very high for longer.

Sources said there were discussions in official circles to cut interest rates from the current level of 22% at the next monetary policy committee. However, they said there was a divergent inflation forecast from the IMF and the central bank, which may lead to the status quo being maintained at least in the next monetary policy.

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Economy slips into stagflation: Pakistan sees meager GDP growth of 0.29%

The sharp devaluation of the currency has also made raw materials expensive and business models unsustainable. The rupee on Wednesday crossed over Rs 288 to a dollar as the foreign exchange regime remains highly volatile.

During the IMF review talks, the finance ministry had told the lender that the overall economic growth rate could remain in the range of 3% to 3.5% due to better growth prospects in the agriculture and industry sectors.

The industrial sector has approximately 18.5% weight in the economy and is expected to grow by 3.3% this year. The finance ministry’s expectations of healthy momentum in the industrial sector were based on some signs of improvement in major sectors in the first two months of the fiscal year.

The LSM had posted positive growth of 2.5% in August after 14 months, but momentum stalled in September with negative growth of 3.6%.

During the July-September quarter, 11 out of 22 sectors showed positive growth, which includes food, beverages, apparel, leather products, coke and petroleum products, chemicals, pharmaceuticals, non-metallic mineral products, machinery and equipment and football.

In July this year, the IMF had estimated that the pace of negative growth in major industries could have been slower if the government had not imposed restrictions on imports.

Since large industries contribute heavily to revenue collection and job creation, any change in their growth affects the government and business climate across sectors.

The main contributors to the overall negative growth are tobacco, textiles, wood products, paper and cardboard, rubber products, iron and steel products, computers, electronic, electrical equipment, automobiles, transport equipment and furniture.

Published in The Express Tribune, November 16^u2023.

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