Pakistan’s large-scale manufacturing sector faces a complex situation marked by fluctuating growth patterns and persistent challenges. Recent data from the Pakistan Bureau of Statistics (PBS) reveal a mixed picture, with certain industries experiencing declines while others show signs of recovery.

The latest figures indicate a second consecutive month of contraction in the production output of large-scale manufacturing industries (LSMI), underscoring underlying fragilities. Sectors such as automobiles and cement have grappled with significant declines, reflecting broader economic uncertainties and policy shifts. However, amidst this downturn, notable exceptions emerge, such as the food sector, buoyed by natural factors like increased farm output.

A closer examination reveals the ripple effects of policy decisions, particularly those tied to IMF conditionalities. Withdrawal of subsidies and incentives has precipitated sharp declines in certain industries, highlighting the delicate balance between economic reforms and sectoral performance. Escalating input costs, compounded by rising utility tariffs and credit constraints, further exacerbate the challenges faced by LSM enterprises.

Despite these hurdles, there are glimmers of optimism. While current growth may be modest, it often signifies a rebound from previous periods of negative performance. This resilience underscores the potential for targeted interventions to spur growth and enhance competitiveness. Moreover, the imperative for policy coherence and agility in responding to dynamic market conditions cannot be overstated.

The production output in large-scale manufacturing industries (LSMI), encompassing sectors such as food, textiles, fertilizers, and construction materials, experienced a decline for the second consecutive month, as indicated by the Quantum Index of Manufacturing (QIM) for February 2024, dropping to approximately 126. According to the Pakistan Bureau of Statistics (PBS), the LSMI reading decreased by 4.14% to 126.1 in February compared to January 2024. However, the heavy industrial sector managed to eke out a 0.6% growth during the same period last year.

Overall, the large-scale manufacturing sector witnessed a negative growth rate of 0.51% from July to February 2023-24 compared to the corresponding period last year, as reported by the PBS. A breakdown of the data revealed varying trends among different sectors within the LSMI. While sectors such as food, apparel, petroleum products, chemicals, fertilizers, pharmaceuticals, machinery, equipment, and furniture recorded an increase in production in FY24, others like tobacco, textiles, paper, non-metallic mineral products, iron and steel, electrical equipment, automobiles, and transport equipment experienced a decline.

Experts foresee a continued sluggish performance in the large-scale manufacturing sector for the remaining four months of FY24, attributing it to the lack of significant driving factors amid the prevailing economic conditions. Elevated inflation rates and high-interest rates have dampened consumer demand, thereby hindering the performance of major industries.

Large-scale manufacturing exhibited a negative growth of 0.51% from July to February 2024 compared to the corresponding period the previous year, although it saw a slight increase of 0.06% in February 2023 compared to the same month in 2023, but notably decreased by 4.14% compared to January 2024. Comparing the current situation to the previous year may not be entirely appropriate due to policy decisions made at that time that were economically unsustainable and contravened the agreement with the International Monetary Fund (IMF).

Critical observations regarding LSM components warrant concern for the government. It’s essential to distinguish between monthly and cumulative data, with the trend depicted in the latter. For instance, textiles, which carry the highest weightage at 18.16%, registered a cumulative negative growth of 1.75% year-on-year in the current year, against a negative growth of 0.75% in February. However, the base was significantly negative at 19.81% in the comparable period of the previous year.

In instances where positive growth is observed, it often stems from preceding periods of negative growth. For instance, automobiles, which hold a 3.10 percent weightage, experienced a significant decline of negative 38.34 percent from July to February 2022-23. However, in the same period this year, the cumulative growth stands at a lesser negative rate of 1.14 percent.

The upturn in the food sector, accounting for 10.69 percent weightage, can be linked to contrasting circumstances. Last year, the sector faced challenges due to massive floods, resulting in a negative growth of 2.19 percent from July to February. Conversely, this year, a natural increase in farm output has led to a positive growth of 0.46 percent. Nevertheless, experts caution that the current rainy spell might jeopardize this upward trend.

Additionally, certain items previously supported by government subsidies or incentives, which are now discontinued due to IMF conditions, are witnessing notable declines in output. Cement, for instance, received substantial incentives as it was deemed crucial for growth by the Pakistan Tehreek-e-Insaf (PTI) administration. However, in February this year, it experienced a dramatic decline of negative 27.61 percent, compared to a cumulative negative growth of 3.83 percent from July to February 2023-24.

The reasons behind the decline in LSM are largely linked to escalating input costs, a concern that persists today. As part of the ongoing IMF program, there has been a consistent increase in electricity and gas tariffs, rendering the country’s exports less competitive, particularly impacting LSM items like textiles. Moreover, the rising cost of living is limiting the public’s purchasing power, evident in the negative growth of 40.74 percent for automobiles from July to February 2023-24. The positive change of 24.85 percent observed in February 2024 may primarily reflect increased sales from existing inventory rather than new output.

Credit, another critical input for the LSM sector, has plummeted by 54.1 percent in the current year from July to March compared to the same period the previous year. This decline is attributed to a high policy rate of 22 percent and increased government borrowing from the domestic commercial sector. It’s imperative to recognize that a bullish stock market doesn’t necessarily indicate an improved investment climate. To foster positive outcomes in the LSM sector, the government must make appropriate policy adjustments to empower this sector as the engine of growth.

Pakistan’s large-scale manufacturing sector navigates a terrain fraught with obstacles, yet opportunities for revitalization abound. As the country grapples with macroeconomic pressures and structural reforms, a nuanced approach is required to unleash the sector’s full potential as an engine of growth. This entails aligning policies with industry needs, mitigating input cost pressures, and fostering an enabling environment for investment and innovation. By addressing these challenges head-on, Pakistan can chart a course towards sustainable economic prosperity.