Recent state of the economy analysis by government agencies has been all upbeat. The October 2025 Economic Update and Outlook, a Finance Division publication, began with the statement “Pakistan’s economy has continued its recovery with domestic economic activity broadly remaining on track during the first quarter of Fiscal Year 2026.”
Sadly, the data uploaded at the end of the report does not bear testimony to the veracity of this optimism because the weights presently used for the Quantum Index for Manufacturing are dated as they are derived from the Census of Manufacturing Industries 2015-16.
However, Large Scale Manufacturing (LSM) sector as per the Finance Division’s monthly update indicated a growth of 4.4 percent July-August 2025, against negative 0.24 percent in the same period the year before, though July-September rate declined to 4.08 percent as per the Pakistan Bureau of Statistics (PBS).
The LSM growth for the entire fiscal year 2024-25 is negative 0.69 percent, which gives a particularly low base for comparison with the current year, and therefore the October Update and Outlook assessment is being dismissed as looking at data with rose-tinted glasses.
The assessment boasts that “in August 2025 LSM marginally grew by 0.5 percent year-on-year while on month basis it declined by 2.7 percent. During Jul-September the performance of the automobile sector remained encouraging, supported by a substantial increase in the number of cars (74 percent) trucks and buses (105.2 percent) and jeeps and pickups (48.7 percent).”
PBS attributed 1.83 percent of the 4.4 percent LSM growth in July-August 2025 to automobiles, 1.02 percent to food and 0.98 percent to cement. In September 2025 LSM Index for manufacturing of automobiles rose to 121.74 as opposed to 114.55 in August. Three observations are critical. First, on 16 September 2025 the Pakistan Automotive Manufacturers Association (PAMA), an association dedicated to the interests of its members, noted that car output doubled from 11,171 units July-August 2024 to 22,446 units in the same period in 2025 while sales rose from 17,288 units to 25,093 units, respectively. This presupposes inventories of 6117 July-August 2024 to 2647 units in the same period this year; however, inventories data are not released by PAMA and hence the extent of data jugglery with respect to LSMI improvement in this sector, if any, cannot be quantified.
It is critical to note that the passage of the Motor Vehicles Industry Development Act (July, 2025), a condition under the ongoing International Monetary Fund (IMF) programme, mandates licensing and certification for local output and imports, prohibits low quality vehicles and imposes strict recalls which, as per PAMA statement, will raise inflation, criminalize routine activities while involvement of FIA was deemed “troubling”.
More recently, PAMA claimed that car sales plunged from 234,180 units in 2021-22 to 112,203 in 2024-25 and tractor sales halved to 29,192 units while two and three-wheeler sales dropped in percent. This indicates not only that the base for comparison was low but also that production growth is unlikely to be sustained due to the Act, rising input prices and higher taxes imposed in the current year’s budget including: (i) 18 percent GST for vehicles up to 850 cc which may account for Suzuki Alto production surge by 220 percent year-on-year to 11,046 units; and (ii) climate support levy on internal combustion engine and hybrid vehicles ranging from 1 to 3 percent of engine capacity to fund electrical vehicle initiatives.
Food’s contribution to growth was 7.77 percent July-August 2025-26 against 2.35 percent in the same months the year before. By September, the LSMI dipped to 112.14 from 114.07 in August.
The weightage of food was only 3.84. Food contribution to LSM’s 4.4 percent was 1.02 percent, which can be challenged on two counts: (i) summer 2025 floods have severely impacted on perishables reflected by a rise in food prices as calculated by the PBS month on month including tomato prices rising by 58.64 percent, onions 18.71 percent, fresh vegetables 12.22 percent, wheat 10.51 percent, flour 5.49 percent, fresh fruits 2.44 percent, vegetable ghee 1.91 percent; and (ii) the data released by government sources noted that July-August output rose (usual as supply of chillies, local garlic and moong rise during these months but the report acknowledged that supply disruptions occur due to the floods).
However, it is unclear whether these assumptions were made based on past data or whether a more recent post-flood assessment was made.
Cement was the second major contributor to LSM growth, rising by 18.65 percent July-August 2025-26, with a weightage in the LSMI index of 4.65 percent. In September, it rose to 3452 against 3407 LSMI in August. In terms of the 4.4 percent LSM growth, cement accounted for 0.98 percent. Pakistan’s total annual capacity is 80 million tons, but capacity utilisation declined from 94.4 percent in 2017-18 to 53 percent in 2024-25 due to high input costs (as a consequence of the ongoing IMF programme’s time-bound quantitative conditions as well as structural benchmarks).
Cement dispatches were projected (as opposed to actual) to grow by 6 percent year-on-year to 4.275 million tons in October 2025 though in the first eleven months of last fiscal year total dispatches were up 3 percent to 41.7 million tons though domestic sales fell by 4 percent — attributed to the slow-down in the China Pakistan Economic Corridor projects (due to the failure of the administration to meet its contractual obligations with around 300 billion rupees dues to the Chinese Independent Power Producers). Prices, however, continue to rise in spite of stalled exports mainly to Afghanistan (which grew by 66 percent in 2024-25). Today, peace talks with the Taliban are stalled, which leads one to conclude that cement exports are unlikely to reach the level of last year.
The PBS’s LSMI index raises other major concerns, notably selection of the items and associated weightage is not usual in other countries. Sugar, for example, has a high weightage — 3.43 percent – which is used to justify incentives at the taxpayers’ expense that have been extended by all administrations to this politically very influential group.
Additionally, reduced inflation has not fuelled LSM because of (i) sustained contractionary fiscal and monetary policies as well as full cost recovery measures adopted for pricing utilities due to the conditions agreed under the ongoing IMF programme. This, in turn, accounts for high unemployment reflected by rising poverty levels to 42 percent and factory closures; and (iii) withdrawal of subsidies to the farm sector as well as to industry as per IMF ongoing programme with obvious implications on LSM growth. An example is cotton that is used as a major input for the textile sector, which in turn has the largest weight of 18.16 percent.
Within these constraints, the element of data manipulation by the PBS due to political considerations remains.
The IMF in its 10 October 2024 documents noted, “important shortcomings remain in the source data available for sectors accounting for around a third of GDP, while there are issues with the granularity and reliability of the Government Finance Statistics.” These need to be ironed out before the data released by the government can be used to make tall claims instead of taking appropriate measures to deal with pervasive issues associated not only with the floods (external factors) but also due to government policies.
Copyright Business Recorder, 2025
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