EDITORIAL: The latest data released by the Pakistan Bureau of Statistics (PBS) for Large Scale Manufacturing Index (LSMI), widely believed to be the engine of growth and a major private sector borrower from the banking sector as it has the necessary collateral, witnessed negative 4.40 percent growth July-January 2022-23 compared to the comparable period of the year before.
This was not unexpected as the February 2022-23 Economic Update and Outlook released by the Finance Division noted that credit to private sector plummeted by 46.1 percent July-January 2022-23 from the comparable period of the year before – a decline in total terms of 371.8 billion rupees.
At the same time the Public Sector Development Programme, another engine of growth, was slashed from 288 billion rupees in the first half of 2021-22 to 162 billion rupees July-December 2022-23.
This indicates that the productive aspect of the economy is shrinking further with only non-development government expenditure on the rise, a highly inflationary policy that the economic team leaders must bear full responsibility for instead of passing the buck onto the structural reforms stipulated by the International Monetary Fund (IMF) as a precondition for the ninth review success.
So which industries are the major contributors to negative LSMI growth? Automobiles witnessed a negative 34.85 percent growth July-January 2022-23 against the same period the year before.
And the reason for this decline is obvious: serious liquidity issues facing prospective buyers due to the sensitive price index reaching the height of 42.27 percent for the week ending 9 March 2023 with a cascading effect on the cost of manufacturing cars as well as the 77.89 percent rise in petrol prices that has raised the running cost of cars. Cotton yarn declined by negative 16.45 percent, cement by negative 13.6 percent and petroleum products by negative 9.86 percent – items that indicate a contracting economy with repercussions on unemployment and the quality of life of the public.
Garments witnessed a 44.47 percent growth rate July-January 2022-23 against the same period the year before as per the LSMI data.
However, All Pakistan Textile Mills Association warned the government last month that textile exports have witnessed a decline of 28 percent – from 1.67 billion dollars in February 2022 to 1.2 billion dollars in February 2023, and held foreign exchange issues responsible for this decline.
In addition, the cost of manufacturing, APTMA said, has increased by 20 percent due to demurrage/detention and delays with a higher quantum of funds stuck in work in progress partly due to the recent rise of one percent in the standard sales tax, depreciation and delays in refunds.
The government would have the public believe that it is powerless to undertake corrective measures and appears to be solely reliant on the ninth IMF review being declared a success followed by disbursements by the Fund as well as funds pledged by friendly countries.
What is even more disturbing is that the government does not appear to have an economically viable action plan be it for the short, medium or long term that has the potential of resolving these issues other than to extend subsidies to the LSM that is being defined as elite capture by not only the IMF’s Managing Director but also by domestic economists.
It is imperative that some out of the box solutions be considered that not only ensure equity with subsidies extended only to the poor and vulnerable while elite capture as a policy to raise output be abandoned in favour of providing a level playing field to the public and private sectors, encouraging the establishment of industries geared towards exports rather than simply exporting the surplus and improving governance.
Copyright Business Recorder, 2023
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