THE new estimates for large-scale manufacturing production published by the Pakistan Bureau of Statistics support the government claims that the economy is returning to the path of recovery from the deep impact of the first wave of the Covid-19 health crisis. The data shows LSM grew by 11.4pc month on month in December and 8.16pc year on year in the first half of FY2021 from the same period in FY2020. Analysts expect LSM to expand much faster in the second half of this fiscal because of the lower base effect as industrial output had plummeted massively from March to June 2020 on the back of Covid lockdown restrictions and the cancellation or deferment of export orders due to closure of international borders. The Quantum Index of the LSM industry, or QIM, had plunged by 25pc during that period because of closure of factories in the country.

The industrial sector may be on its way to recovery compared to last year when millions lost their jobs and were pushed into poverty. But the recent revival of output in the industrial sector remains weak. The QIM at 167.2 in December 2020, for example, has yet to touch the peak of 170.2 reported in January 2018. Moreover, the rise in the QIM in recent months owes much to the lucrative tax amnesty and incentives for real estate investors and the early start of the sugar harvest. The early end of sugar crushing may affect the numbers in March. A look at the new data also shows that LSM recovery is not broad-based as much of the growth in production in recent months has come from sugar, steel, fertilisers, cement, cigarettes, automobiles and pharmaceuticals. The remaining industries have yet to post an increase in output, which is crucial to sustainable growth.

A cursory glance at PBS data for the last two years would show that the manufacturing output had started to contract long before the global pandemic hit the country last year. The QIM consistently plummeted till June 2020 from the January 2018 peak. Covid-19 infections only exacerbated the losses inflicted by harsh economic stabilisation policies that saw interest rates rise to 13.25pc and currency depreciate in a very short time. Reversal of these policies has been a major reason for the recent revival of the industrial sector as well as exports recovery in the current fiscal. However, the present recovery remains fragile and continues to be in need of policy support from the government as well as the State Bank. With the government all set to revive the suspended $6bn loan programme with the IMF, many fear that pressure from the lender may force it to scrap most of the business-friendly actions it has taken over the last several months. Does the government have a plan in place to counter the ensuing negative effects?

Published in Dawn, February 19th, 2021