THE hefty slump of 25pc in large-scale manufacturing in March — the biggest monthly drop since the Covid-19 shutdown — from a year ago, confirms that the decline in the sector, triggered by curbs on the import of raw material, steep currency depreciation, rising financing cost and, last but not least, contraction in domestic and international demand, is accelerating. New data from the Pakistan Bureau of Statistics shows that the LSM industry has contracted 8.1pc in the nine-month period from July to March — from a robust growth of 11.7pc in the previous fiscal year — as difficult economic conditions, responsible for factory shutdowns and production cuts, continue to bite producers more and more with each passing month. The data is illustrative of a very painful period for industry as workers lose their jobs in large numbers. Output contraction in the manufacturing industry has been widespread and reflects a broad-based deceleration in economic activities as production in 19 sectors out of 20 shrank in the nine-month period.The textile industry, the country’s largest employer after agriculture and the biggest earner of export dollars, has slumped by nearly 31pc from a year ago. Pharmaceutical and automobile industries have declined by over 28pc and 25pc respectively. The same is the case with the steel and chemical industries.

The decline in the manufacturing industry is not surprising; it was expected once the government started to discourage domestic demand with a view to protecting the fragile external sector as the widening trade deficit threatened to wipe out Pakistan’s foreign exchange reserves. Initially, restrictions were placed for a limited period, but soon the government had to widen the scope of administrative controls on dollar outflows as reserves kept plunging because of debt repayments and drying inflows. With the industry contracting consistently, multilateral lenders have revised down their GDP growth forecasts for the present fiscal year to just 0.4pc to 0.6pc, projecting unemployment to increase to 7pc as a result of massive industrial lay-offs. Many expect the economy to post negative growth; their projections are not far-fetched given the present economic environment and our weak balance-of-payments position. The contraction in LSM is just a symptom of a disease which cannot be treated without the resumption of funding from the IMF and other multilateral lenders. The manufacturing industry will not revive unless the balance-of-payments issue is tackled.

Published in Dawn, May 17th, 2023