LSM performance remains poor

According to data released by the Pakistan Bureau of Statistics, Large-Scale Manufacturing (LSM) growth was 1.86 percent in the first quarter of the current fiscal year (July-September) over the corresponding period last year. The growth though small was led by automobiles (13.9 percent), electronics (7.45 percent), chemicals (6.2 percent), textiles (1.03 percent), food and beverages (2.71 percent), paper and board (2.9 percent), rubber products (6 percent), pharmaceuticals (2.75 percent) and petroleum products (0.94 percent).
A closer look at these LSM components reveals rather disturbing data in the Economic Survey 2013-14. First, textiles sector's contribution to LSM is 20.9 percent and registered a growth of 0.9 percent during July-September 2012-13 - the last year of the PPP-led coalition government - and registered 1.44 percent growth for the comparable period of 2013-14. However, the 1.03 percent growth in the first quarter of the current year is extremely disturbing as it is subsequent to the grant of the GSP plus status by the European Union effective 1st January, 2014. This must be a source of serious concern for the government and should be dealt with appropriately. There have been reports that the government is mulling over a decision to allow uninterrupted gas supply to Punjab-based textile sector; however, reports also indicate that there is a considerable difference of opinion within ministries over this proposal with the Petroleum and Water and Power ministries arguing that uninterrupted supply to the textile industry would have negative repercussions on supply to the domestic sector with a considerable socio-political fallout against the government. The textile exporters have lamented the government's focus on nominal as opposed to the real exchange rate as a factor in their inability to compete internationally - a claim supported by the International Monetary Fund (IMF) in the third review report in which it is stated that "the authorities do not share staff's view that the exchange rate is somewhat overvalued and place greater priority on the nominal exchange rate stability." And textile exporters also claim that the continuing sit-ins are leading their buyers to suppliers from other countries and have repeatedly warned the government that once lost it is difficult to get a client back.
Food, beverages and tobacco account for 12 points weightage in LSM and this sub-sector witnessed a rise of 7.43 percent in the first quarter of the last year of the PPP-led coalition government, 7.78 percent growth last fiscal year and the 2.71 percent this year during the comparable period is a source of serious concern.
Coke and petroleum products are the third largest contributor to LSM calculation, 5.51 points, and registered a growth of 13.32 percent in 2012-13's first quarter, 7.48 percent in 2013-14 and the 0.94 percent in the comparable period this year, which is well below last two years' performance.
Automobiles account for 4.61 points weightage in LSM calculation and in July-March 2012-13 this sub-sector's growth was negative 11.95 percent with negative 0.01 percent recorded in 2013-14 according to the Economic Survey. Thus nearly 14 percent growth in the first quarter of the current fiscal year is a positive development.
Pharmaceuticals are the fourth largest contributor to LSM calculation with 3.62 points and registered 6.61 percent in July-March 2012-13, negative 0.49 percent last year and the 2.75 percent growth this year is also a positive development.
LSM sectors that witnessed a decline are negative 4 percent for fertilisers with 4.44 points weight in LSM calculation (attributable to gas shortages), wood products by a whopping 81.9 percent (with 0.59 point weight) and leather products by 2.14 percent (with 0.86 point weight).
To conclude, there is an urgent need for the government to take appropriate policy actions designed to fuel the LSM growth rate because that would not only generate employment opportunities but also export revenue, thereby reducing reliance on domestic and foreign borrowing in a significant and meaningful manner.