According to NEW large-scale manufacturing (LSM) data released by the Pakistan Bureau of Statistics, major industry output fell by 11.59 percent from a year earlier in February, continuing the trend over the previous six months. In the first eight months of the current fiscal year, the LSM sector, which accounts for one-tenth of the nation’s output, has seen a year-over-year decline of 5.56 percent as factories shut down or reduce production due to raw material shortages brought on by supply chain disruptions, elevated energy prices, sharp currency depreciation, rising interest rates, and, last but not least, a decline in both domestic and foreign demand.
The decline in industrial output continues to reflect the general slowdown in economic activity, as the State Bank noted in its most recent monetary policy statement. Given the worsening conditions affecting the manufacturing sector, LSM decline may pick up speed in the final four months of the fiscal year. This is demonstrated by the consistently declining sales of cars, cement, and steel, as well as the sharp decline in exports of textiles and clothes, etc. The worst affected industries are among those in the pharmaceutical industry.
The decline extends beyond the manufacturing industry. Agricultural growth is also showing unsettling signs of slowing down. With cotton arrivals down 34% from the previous harvest, it is expected that wheat output would fall short of the goal. In the future, the rising imports of food and cotton will put more strain on the already depleted foreign currency reserves. In light of the current catastrophic circumstances, it is therefore not surprising to see multilateral lenders lower their GDP growth expectations to just 0.4–0.6% and raise their unemployment projections to 7%. Some economists predict that the nation might see negative growth this fiscal year and that unemployment could reach a historic high of 10%.
Government measures that choke the economy through demand compression and import restrictions are to blame for the lowest level of business confidence. To expect a politically troubled, ineffective government to change these measures and run the danger of being held accountable for a default in a highly polarised political environment, particularly with elections just a few months away, would be unrealistic. Even if the long-awaited critical rescue deal with the IMF materialises, it will more than likely continue to restrain domestic demand and imports to prevent a “formal” default.
