EDITORIAL: According to data released by the Pakistan Bureau of Statistics (PBS), large-scale manufacturing industrial output declined by 24.80 percent in May 2020 in comparison to the comparable period of the year before, as nearly all industrial units suffered negative growth, including textiles by 30.45 percent, and ten out of the eleven sectors under the Oil Companies Advisory Committee. Clearly, May 2020 was the month negatively affected by the onslaught of the Coronavirus; there was also a significant eleven-month (July-May 2019-20) LSM output decline estimated at 10.32 percent compared to the same period of the year before (2018-19).
It is critical to segregate pre- and post-Covid-19 manufacturing data to determine the impact of the contractionary fiscal and monetary policies agreed by Pakistan with the International Monetary Fund under the 6 billion dollar thirtynine-month Extended Fund Facility Programme. The first Covid-19 case was reported end March 2020 and therefore a comparison of the success of the EFF design with respect to the LSM can be assessed by looking at the July 2019 to March 2020 data. PBS data reveals that during this period overall output of LSMI decreased by 5.40 percent compared to the same period in 2018-19. The sectors that showed growth were fertilizers, leather products, non metallic mineral products, paper and board and rubber products. And not surprisingly during the eleven months of 2019-20 only three out of these growth sectors witnessed an increase in output notably fertilizers by 5.64 percent, paper and board by 2.12 percent and rubber products 2.86 percent.
Engineering products, notwithstanding the rise in production of ventilators in the country, grew by 8.78 percent in July-May 2018-19 while experiencing negative growth of 18.16 percent in July-May 2019-20. Interestingly, in May 2018-19 engineering products witnessed negative growth of 15.46 percent while the comparable figure for May 2020 was negative 66.35 percent.
It is also relevant to note that the IMF had projected that "in the near term, economic activity is expected to decelerate to below its potential. Higher interest rates together with fiscal consolidation and administered price adjustments will constrain credit growth, incomes, and domestic demand in 2019/20. A gradual increase in confidence as well as in public development spending will offset some of the impact on the economy." The projected GDP growth was 2.4 percent with the Advisor on Finance claiming it was closer to 3 percent. Yet the Fund's first review report dated December 2019 noted that: "following rapid but unbalanced growth in recent years, propped up by unsustainable policies that led to a soaring debt burden and depletion of reserves" (no doubt a challenge to the PML-N claim that growth was higher during its tenure, a reference to Ishaq Dar's flawed policy to borrow heavily from abroad to shore up reserves and a thinly veiled reference to the China Pakistan Economic Corridor and the Western perception that Pakistan is procuring unsustainable debt from China for the purpose) "growth has slowed down in recent months as the economy is adjusting to the new policies. The latest high frequency indicators point to a mixed picture with weaker large scale manufacturing activity...anecdotal evidence suggests unemployment is rising but this may be masked by considerable unemployment in the informal sector."
The foregoing indicates that the industrial growth output forecast by the Fund based on, the low base the year before, did not materialize and the negative trend continued. Furthermore, by December the Fund was aware that unemployment was on the rise particularly in the informal sector that was further hit by the pandemic as rightly pointed out by the Prime Minister in his policy to support economic activity post-Covid-19 to stave off hunger of hundreds of thousands employed by the informal sector rather than shutting down the country due to the pandemic.
Business Recorder broadly supports the IMF design, however, the issue remains one of front loading instead of phasing out the challenging conditions which, as acknowledged by the Fund in its first review report, increased unemployment in the informal sector; but what the Fund has not noted is that this increase could not be absorbed by the social sector development programme including Ehsaas because of problems associated with identifying those newly eligible as well as the government's financial constraints with respect to allocation for Ehsaas. It is, therefore, necessary that the IMF considers granting waivers on achievement of some of the front-loaded conditions in a manner that they can be spaced over the duration of the programme as the impact of the ongoing pandemic continues to militate against the EFF programme design of heavy-front loading.
Copyright Business Recorder, 2020
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