Amidst fear of default and economic stagnation, Pakistan’s large-scale manufacturing declined by 7.75 per cent year-on-year in October, with the textile, machinery and equipment, and automobiles sectors shrinking, it emerged on Thursday.
The large-scale manufacturing (LSM) had swung to growth in September, posting an annual increase of 0.1 per cent compared to August, which was an improvement from July when the LSM shrank 1.4 per cent year-on-year, the Dawn newspaper quoted the Pakistan Bureau of Statistics (PBS) as saying.
However, economists had raised concerns about an economic slowdown caused by record energy and raw material prices.
Commenting on the latest figures, former finance ministry adviser Dr Khaqan Najeeb said: “Facing a balance of payments challenge, the authorities have taken a number of measures to slow down the economy.
"These include tightening of monetary policy as well as administrative measures to curtail imports. These measures coupled with challenges of floods, energy shortfalls and a slowing global economy have resulted in the contraction of the LSM output.”
The economic slowdown, however, necessary to stabilise the economy, has been quite pronounced, Najeeb said.
“It is important to ease the severe dollar liquidity crunch by increasing inflows and maintain a realistic exchange rate so that manufacturing is not disincentivised,” he added.
The main contributors to the YoY decline were automobiles (down 30.56 per cent); textile (24.62 per cent); machinery and equipment (38.01 per cent); wood products (81.75 per cent); computer, electronics and optical products (25.66 per cent); and pharmaceuticals (18.56 per cent).
On the other hand, the furniture sector grew 105.41 per cent, followed by football (65.46 per cent) and wearing apparel (34.14 per cent). The PBS data showed that LSM dipped by 3.62 per cent in October over the preceding month.
Moreover, in the July-October period, LSM shrank 2.89 per cent compared to the first four months of the previous fiscal year.
The slowdown started in June when manufacturing activity grew only 0.2 per cent compared to the previous month. In the previous fiscal year, large-scale manufacturing grew 11.7 per cent year-on-year.
Separately, the report said that shares at the Pakistan Stock Exchange (PSX) fell by more than 500 points on Thursday, with analysts attributing it to delays in the completion of the International Monetary Fund’s (IMF) ninth review and rising political uncertainty.
Head of Equity at Intermarket Securities Raza Jafri said market sentiment was weak on apprehensions that the release of the IMF tranche could possibly be delayed till next year.
Pakistan entered a USD 6 billion IMF programme in 2019, which was increased to USD 7 billion earlier this year.
The programme’s ninth review is currently pending with remote talks being held between IMF officials and the government for the release of USD 1.18 billion.
Pakistan and IMF had a round of engagement on November 18 but could not finalise a schedule for formal talks on the overdue ninth review.
The talks, originally due in the last week of October, were rescheduled to November 3 and then kept on facing delays following gaps in estimates by the two sides.
Meanwhile, First National Equities Limited Director Amir Shehzad said the primary reason for the slump was political uncertainty.
“There are a few reasons [for the fall]. One is [PTI Chairman] Imran Khan’s statement that he will announce on the 17th when he plans to dissolve the [Punjab and Khyber Pakhtunkhwa] assemblies. Consequently, there is a lot of political uncertainty due to which there is immense pressure on the market.
“Secondly, the issues with the IMF have not been resolved yet,” he said, adding that talks of default were also affecting market sentiment.
The PTI plans to conclude its rallies under the “election karao, mulk bachao (hold elections, save the country)” campaign by Friday, and on Saturday hold a ‘large’ public gathering in Lahore where party chief Khan will announce his ‘final’ plan to dissolve the two provincial assemblies his party heads, the report said.
In another linked development, remittances sent by overseas Pakistanis declined by 14 per cent in November this year. The inflows fell by 9.6 per cent during the first five months of the current fiscal year (FY23).
The latest data released by the State Bank on Wednesday showed that the remittances kept falling and declined to USD 2.1 billion in November from USD 2.5 billion during the same month last year. The inflows declined by 5 per cent compared to USD 2.215 billion in October this year.
During July-Nov FY23, the remittances fell by USD 1.279 billion (9.6 per cent) to USD 12bn from USD 13.286 billion during the same period last fiscal year.
Foreign remittances are the mainstay of Pakistan's economy as it is heavily dependent on the money sent back by the expatriates.