In a significant economic development, Pakistan’s Large-Scale Manufacturing(LSM) sector saw a contraction of 3.7% in the first half of fiscal year2022-23 (1HFY23), which is a stark contrast to the previous year’s robustexpansion of 7.7% over the same period.
This contraction highlights the multifaceted challenges faced by thesector, including tight monetary conditions, reduced spending on the PublicSector Development Programme, measures to limit imports, rising power andfuel costs, and decreased demand in both domestic and global markets.
During 1HFY23, a wide range of industries within the LSM sector wereaffected, with 18 out of 22 sectors experiencing contractions. This issignificantly different from the same period last year when only sixsectors were in decline, and an average of 12 sectors faced contractionsduring the corresponding period in the previous three years.
While the export-oriented sectors monitored by the LSM index helpedstabilize the manufacturing industry during 1HFY23, when looking at thesesectors individually, the extent of contraction worsened to 9.9%, comparedto an expansion of 6.1% during the same period the previous year.
The overall decline in LSM was primarily driven by the textile industry,followed by the automobile, pharmaceutical, non-metallic mineral products,and coke and petroleum products sectors. Textiles and automobiles, beingsignificant contributors to the LSM sector, contracted by 13.1% and 30.2%,respectively, during 1HFY23, in contrast to expansion rates of 3.5% and68.2% over the same period the previous year.
The decline in pharmaceuticals, non-metallic minerals, and petroleumoutput also played a substantial role in the overall contraction. However,the wearing apparel and furniture industries continued to grow, partiallymitigating the extent of the LSM decline, expanding by 46.6% and 105.5%,respectively, in 1HFY23.
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The increase in tariffs and fuel prices imposed by the government led to asignificant rise in input costs, as evidenced by the Wholesale Price Index(WPI), which surged from 21.5% in the same period the previous year to34.1% in the period under review.
Furthermore, tight monetary conditions resulted in reduced demand for bankborrowing by the manufacturing sector, declining from Rs674 billion in1HFY22 to Rs502.5 billion in 1HFY23. External factors also weighed heavilyon Pakistan’s LSM sector during 1HFY23. Insufficient foreign exchangeinflows, mounting pressure on foreign exchange reserves, and exchange ratechallenges led to temporary restrictions on importing raw materials,hindering manufacturing activities.
Kashif Anwar, President of the Lahore Chamber of Commerce and Industry(LCCI), expressed deep concern about the significant increase in productioncosts in recent months, citing high-interest rates, exchange ratevulnerability, and continuous price hikes as contributing factors.
He anticipated a further decline in exports due to these challenges andstressed the need for the government to engage with stakeholders anddevelop effective strategies to mitigate these costs in the currenteconomic environment. Collaboration among various parties was emphasized tofind solutions to these pressing issues.
