NEW large-scale manufacturing data, published by the Pakistan Bureau of Statistics, shows that, in keeping with the trend over the last six months, big industry output decreased by 11.59pc in February from a year ago. Overall, the LSM sector, which contributes one-tenth to the national output, has shown a year-over-year decline of 5.56pc in the first eight months of the present fiscal as factories close down or slash production because of raw material shortages caused by supply chain disruptions, increased energy prices, steep currency depreciation, rising interest costs, and, last but not the least, contraction in domestic and international demand. As the State Bank stated in its last monetary policy statement, the contraction in industrial output continues to reflect the broad-based slowdown in economic activities. LSM contraction could accelerate further in the remaining four months of the fiscal year as the factors pulling down the manufacturing sector continue to worsen. This is reflected in the constantly falling sales of automobiles, cement and steel as well as plunging textile and clothing exports, etc. Pharmaceutical companies have been among the businesses worst affected.

The slowdown is not confined to manufacturing. Agriculture is also exhibiting worrying signs of slowing growth. Cotton arrivals have slumped 34pc when compared to the previous harvest, and the prediction is that the wheat production target won’t be achieved. The resulting cotton and food imports will put additional pressure on the scarce foreign currency reserves and deteriorating exchange rate going forward. Thus, it isn’t surprising to see multilateral lenders revise down their GDP growth forecasts to a mere 0.4-0.6pc and increase unemployment projections to 7pc as a result of massive industrial layoffs under the presently dire conditions. According to some economists, the country could experience negative growth and unemployment may rise to a record 10pc in the current fiscal. Business confidence is at its lowest because of government policies that are choking the economy through demand compression and import restrictions. However, it will be naïve to expect a politically beleaguered, weak government to reverse these policies and risk being blamed for a default in a highly polarised political environment — especially with elections just a few months away. It will more likely continue to suppress domestic demand and imports to avoid a ‘formal’ default even if the long-awaited crucial bailout deal with the IMF materialises.

Published in Dawn, April 19th, 2023