EDITORIAL: Large Scale Manufacturing Industries (LSMI) output suffered yet another hit in February 2023 against January 2023 (negative 0.5 percent), and against February 2022 (negative 11.9 percent).
LSMI in July-February 2023 against the comparable period of the year before, suffered negative 5.56 percent decline in output (cumulative) which is the highest in the country’s history barring the three months in 2020 - April at negative 8.56 percent, the month of May registered negative 10.93 percent and negative 11.01 percent in June - months distinguished by the onset of the pandemic necessitating lockdowns and a significant decline in non-food private consumption due to deferral of purchases. By July 2020, cumulative LSMI output growth was negative 1.59 percent.
Consumption has risen in recent months reflected by a decline in savings due to persistently very high rates of inflation – consumer price index for July-March 2023 was 27.26 percent against 10.77 percent in the comparable period of the year before, sensitive price index was 30.50 percent against 17.5 in the comparable period of the year before and wholesale price index was at 34.15 percent in 2023 against 22.27 percent in July-March 2022 – however, the rise in consumption is mainly attributable to food items leading to considerably lower demand for other items. But this is not all that is causing the decline in LSMI in the current fiscal year.
The following five major components of LSMI in terms of weights all witnessed negative growth: (i) textiles accounting for 18.1 weightage registered negative 19.67 percent in February 2023 and negative 14.03 percent July-February 2023. This decline no doubt is largely attributable to the flawed decision to control the rupee rate (October 2022 to 27 January 2023) while the very low foreign exchange reserves necessitated controls on opening letters of credit that compromised imports of key inputs by the textile sector.
This decline is irrespective of the fact that exporters were provided electricity at subsidised rates from October 2022 till February 2023; (ii) food accounting for 10.69 weightage suffered negative 2.43 percent in February 2023 and negative 1.95 percent July-February 2023. This is relatively a small decline, given the devastating floods last year were expected to reduce farm food output considerably; (iii) coke and petroleum products with a weightage of 6.66 registered a decline of negative 6.35 percent in February 2023 and negative 9.43 percent July-February 2023.
This is without doubt due to the lower consumption levels that are in turn because of the high prevailing inflationary pressures; (iv) chemicals weightage 6.48 percent (inclusive of chemicals and fertilizers with a weightage of 2.55 and 3.93, respectively).
Fertilizers overwhelmingly the main drivers for the negative growth registered negative 25.01 percent in February 2023 and negative 7.77 July-February 2023 attributable to lack of gas availability; and (v) pharmaceuticals with a weightage of 5.15 registered negative 25.4 percent in February 2023 and negative 22.41 percent July-February 2023 due to the government’s resistance to allow the companies to pass on their increase in input costs.
While the Finance Minister is adept at laying the blame for the current situation on either the previous government or his predecessor Miftah Ismail or on the IMF’s recalcitrance in refusing to budge from an agreement that was signed off by the Khan administration, yet there is empirical evidence, suggesting a woeful deterioration in the situation due to his own flawed policy decisions (including controlling the external rupee rate and extending untargeted subsidies). His reliance remains on external sources of finance, which are increasingly drying up and presenting a challenge due to sustained failure to implement structural reforms that led to the current severe economic impasse for which he is as responsible as his predecessors.
The IMF has projected a growth rate of 0.5 percent for the current year – a rate hardly likely to reverse the negative LSMI trend. What is a source of further concern to the general public is that there is nothing in terms of out of the box thinking or freethinking views on the horizon that can reverse the negative trend in LSMI with obvious negative repercussions on employment opportunities. It is getting increasingly critical to induct an economic team able and willing to formulate policies that can take the country out of this ongoing untenable situation without any further loss of time.
Copyright Business Recorder, 2023
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