EDITORIAL: Pakistan Bureau of Statistics provided the quantum indices of Large Scale Manufacturing Industries (LSMI) for December 2023 with base year 2015-16 showing an increase by 3.43 percent year-on-year (in comparison to December 2022) and 15.69 percent month-on-month (against November 2023).
This data was placed prominently in the report while down in para 3 it was acknowledged that overall LSMI growth was negative 0.39 percent – a negativity that has certainly declined over the past few months sourced mainly to higher crop output, which as per sector experts, is a natural outcome after a flood year, but which has yet to be eliminated.
To look at the data from a historical perspective it is relevant to note that in June 2020 the LSMI growth negativity rose to negative 10.93 percent, a contraction attributable to the onset of Covid-19; however, it turned positive from November 2020 to June 2022 and thenceforth negativity began to be a feature of LSMI peaking at negative 10.3 percent in June 2023 (before the onset of floods) to negative 0.39 percent in December 2023.
The data extracted from PBS (Pakistan Bureau of Statistics) and Finance Division websites notes that in July-June 2022 LSMI growth was 11.7 percent and July-June 2023 negative 10.3 percent. In spite of the continued negativity in LSMI the Caretakers gave a positive spin by focusing on the potential, a common enough practice in this country as one continues to hear of export potential, which has yet to be reached 75 years down the line, and the Finance Division in its monthly publication titled ‘Monthly Economic Outlook and Update for December’ noted: “signs of potential recovery in the industrial sector reflected by positive trends in high-frequency indicators, imports, and a favourable external environment.”
This newspaper repeatedly requested the Finance Division to share the definition and the calculations of the high frequency data but to no avail and January outlook repeated the same claim by claiming that “it is apparent from better growth prospects in the real sector visible in Month on Month increase in LSM growth, an improvement in high-frequency indicators (cement dispatches, farm tractors, fertilizers), and an increase in credit disbursements to the agriculture sector.”
It is relevant to point out that fertilizers witnessed a 10.07 percent growth, a sector reliant on ever more expensive gas supplies as well as some fiscal incentives, garments by 15.14 percent (though it is relevant to note that exports of the entire sector continue to contract) and petroleum products (largely imported) by 8.40 percent. The negative growth sectors were itemised as automobiles at negative 53 percent, cotton cloth at negative 15.14 percent, and cotton yarn at negative 18.18 percent.
The cause of this negativity is attributed to the high cost of inputs due to administrative measures implemented under the ongoing International Monetary Fund (IMF) programme that includes full cost recovery by utilities that has led to ever-rising input costs and the inordinately heavy reliance on inflation boosting sales tax, inclusive of high petroleum levy, and withholding tax levied in the sales tax mode.
The manufacturing sector is clamouring for restoration of fiscal and monetary incentives that the five major export sectors enjoyed till the recent past and which have ended since the Fund programme was approved while the government has expressed its inability to violate any agreed conditions as that would possibly lead to a programme suspension with the distinct possibility of a default that, in turn, would have even more negative consequences on macroeconomic indicators with the fear that poverty levels may rise even more than the current high of 40 percent.
The rising poverty levels are partly attributable to inflation that continues in the double digits, the sensitive price index for the week ending 15 February registering a rate of 34.25 percent, and partly due to the continued negativity in the LSMI sector with factory closures due to export contraction by 2.99 percent July to January 2024.
The Finance Division in its January Outlook noted that “the LSM cycle usually follows the cyclical movements in main trading partners, but since it is focused on major industrial sectors and not on total GDP, it is somewhat more volatile than the cyclical component of GDP in Pakistan’s main export markets.”
And there one has the government’s tacit acknowledgement that the high frequency sectors cater mainly to the domestic markets (apart from whatever is smuggled out of the country) and require molly-coddling through provision of incentives at the taxpayers’ expense – a policy that has implied reliance on borrowing to shore up foreign exchange reserves that have crippled the capacity of this country to take decisions independent of those dictated by multilaterals and bilaterals.
One way out is of course to slash current expenditure that would require sacrifices from the influential sections of society and thereby increase leverage with the IMF though that option remains untapped to this day.
Copyright Business Recorder, 2024
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