In the sweltering heat of Lahore’s industrial outskirts, where the hum of machinery once echoed like a heartbeat for thousands of workers, the large-scale manufacturing (LSM) sector has long been a barometer of Pakistan’s economic pulse. For families in Faisalabad’s garment mills, steady production means school fees paid on time and a roof that doesn’t leak. But when output stalls, as it has for years, the ripple effects turn dreams into daily struggles—delayed wages, mounting debts, and quiet desperation.
That’s why the latest data from the Pakistan Bureau of Statistics (PBS), released just days ago, feels like a rare breath of fresh air: LSM grew by 8.99% year-on-year in July 2025 compared to the same month last year, with a more modest 2.60% uptick month-on-month from June. It’s the strongest July showing in three years, pushing the overall index to a record 115.68 for the month. Yet, as with so much in Pakistan’s economy, this uptick demands scrutiny. Is it a genuine revival, or a statistical sleight of hand propped up by a rock-bottom base from flood-scarred 2024?
Two stark realities frame this narrative. First, the PBS’s granular breakdown of sub-sector performances is conspicuously absent for the month-on-month comparison (July versus June 2025), leaving analysts piecing together a puzzle with incomplete pieces. We have the year-on-year details, which paint a picture of selective surges, but the sequential view—crucial for spotting true momentum—remains opaque. This isn’t just bureaucratic oversight; in an economy where monthly swings can signal everything from supply chain snarls to policy shocks, such gaps breed uncertainty. Businesses hesitate to invest, workers brace for volatility, and policymakers grapple with half-truths.
Layer on the second complication: the International Monetary Fund’s (IMF) tightening grip, which has reshaped the playing field since the staff-level agreement on July 12, 2024. That deal, part of a $7 billion Extended Fund Facility, promised stability but came with strings attached—fiscal consolidation targets, a freer-floating rupee, and curbs on central bank interventions to prop up the currency. The fine print, uploaded to the IMF’s site only in October 2024, zeroed in on a web of distortions that have long plagued Pakistan’s industries. In its Article IV Consultation report, the Fund lambasted government meddling in price controls for everything from agricultural staples to fuel, power, and gas (reviewed biannually), alongside sky-high tariffs and non-tariff barriers that shield “selected groups or sectors.” These interventions, the IMF argued, “tilted the playing field” in favor of cronies, stifling competition and locking capital into “chronically inefficient (including perpetually ‘infant’) industries.” The verdict? Scrap the monetary and fiscal incentives propping up these relics—subsidies, tax breaks, and protective walls that, despite billions poured in, have failed to ignite the LSM as a growth engine. For manufacturers like those in Sialkot’s surgical instrument clusters, this means navigating a post-handout world where efficiency, not favoritism, rules. It’s a bitter pill, but one that could, in theory, foster innovation—if the transition doesn’t crush the vulnerable first.
These headwinds hit harder against the backdrop of an extraordinarily low base from last year. The Finance Division’s monthly Economic Outlook paints a grim prelude: LSM for July-October 2023 plunged a staggering 23.21%, a contraction born of energy crises, import curbs, and the lingering scars of 2022’s mega-floods. Fast-forward to the same stretch in 2024, and the negativity eased to just 0.64%—a whisper of progress, even as July alone clocked in at 2.4% growth. This base effect turbocharged 2025’s numbers, turning a modest recovery into headline-grabbing gains. But hailing July’s 8.99% as a trend? That’s premature, especially with the 2025 monsoons unleashing biblical floods that have submerged Punjab’s farmlands and snarled supply lines nationwide. Unlike last year, when the skies held back, this year’s deluge has already inflicted $1.4 billion in damages, with agriculture—the lifeblood of LSM inputs—slashed by 15-20% in affected regions. Early assessments peg crop losses at over 10 million acres, drowning rice paddies and cotton fields that feed textile looms and food processors. For farmers in Sindh and Punjab, it’s déjà vu from 2022: homes washed away, livestock drowned, and harvests reduced to mud. The full toll won’t crystallize until the rains ebb, but projections warn of a 0.5-1% drag on GDP, with knock-on effects for manufacturing raw materials.
The State Bank of Pakistan (SBP) underscores this fragility in its historical lens: LSM eked out a mere -0.21% in FY24, rebounding to 2.51% in the prior year and now eyeing 2.68% for FY25. Yet, LSM’s slice of the GDP pie is slender—barely 8% last fiscal year—making it a tail that rarely wags the dog. Its fortunes hinge on agriculture (now flood-ravaged), soaring input costs, punitive taxes, and borrowing rates stuck at 11%, the region’s highest. Electricity tariffs, another regional outlier, squeeze margins further, turning factories into financial black holes. With IMF-mandated contractionary policies—tight money and austere budgets—sustained LSM vigor seems like a long shot. The SBP’s steady policy rate offers predictability, but at the cost of stifled credit for expansion.
Zooming into July’s bright spots reveals a tale of uneven lifelines. Automobiles roared ahead with 57.80% YoY growth, their 3.10% weight in the index amplified by pent-up demand and a low prior base—contributing 1.33 points to the overall rise. Garments, the heavy hitter at 24.79% growth and 6.08% weighting, added a whopping 3.80 points, buoyed by a 32% export surge to $1.68 billion, fueled by global apparel hunger. Cement followed at 18.75%, within the non-metallic minerals category’s 16.5% leap (0.96-point contribution), signaling a thaw in construction. These drivers—textiles, autos, and building materials—account for much of the optimism, a nod to export resilience and domestic recovery flickers.
But shadows loom large. Automobile sales, after a 64% June spike tied to pre-budget incentives, cratered 49.3% in July to 11,034 units, a post-peak hangover that questions the sector’s stamina. Cement’s export story sours too: while domestic output climbed, shipments to Afghanistan—Pakistan’s top buyer—dropped sharply amid frosty ties and cross-border terror spikes, with overall bilateral trade dipping 12% month-on-month. Garments’ export boom, though, holds firmer, a testament to Pakistan’s GSP+ edge in Europe, but vulnerabilities like U.S. tariff threats under a potential Trump return could unravel it.
For the workers on the factory floor, these gyrations aren’t abstracts—they’re paychecks postponed or pink slips looming. Aisha in Faisalabad might sew for export orders today, but tomorrow’s flood-damaged cotton could idle her machine. Policymakers must bridge the IMF’s reform zeal with on-ground realities: targeted aid for flood-hit suppliers, export diversification beyond textiles, and a phased unwind of distortions to nurture true competitiveness, not coddle the lame.
July’s LSM glow is a spark, not a bonfire. Amid floods that have displaced millions and IMF demands that prune protections, sustaining it demands more than low bases—it calls for bold, equitable reforms. If Pakistan can channel this momentum into resilient chains and inclusive growth, the sector could finally rev up as the engine it was meant to be. Until then, it’s a cautious cheer: progress, yes, but perilously perched.