Large Scale Manufacturing (LSM) has made headlines again; people are talking about how it is the first ever contraction in the last 10 years. That perspective cannot be disputed, as is quite evident from the illustration here. But is that really a surprise?
As early as July 2018 when the fiscal year 2019 just began, signs of a looming manufacturing recession were already in. When BR Research interviewed Dr Ehtisham Ahmad, senior fellow at the LSE and Pakistan’s Senior Advisor to the IMF Executive Board in 2008, he explicitly said: “Pakistan is in an economic crisis of unparallel proportions; and is in a position worse than in 2008”. (For details, read his interview in this paper’s Brief Recording section August 6, 2018)
Even brokerage houses that generally have a bullish bias towards forecasts had a sense of impending doom. For example, brokerage JS Global wrote in its CY19 equities strategy report: “make no mistake that we are economically worse off now than during the previous two IMF entry points (2008 and 2013) and our external funding plague will continue to infect our monetary and fiscal policies in 2019”.
By this comparison, therefore, it could be argued that Pakistan manufacturing sector in FY19 did better than what was previously feared. In FY09 – when Pakistan entered into the IMF programme – the country’s LSM growth had contracted by 6.04 percent. In contrast, FY19’s contraction is much lower, although admittedly the final number released next year will be a few points lower than what’s been provisionally released this week.
The real question is what’s going to happen in FY20. At the one end, fiscal constraints have led to reduced public sector development spending, where CPEC related expenditure has also tapered off, while private sector is grappling with low demand owing to high inflation amid higher interest rates.
Yet on the other hand, rationalization of exchange rate has started to offer green shoots towards domestic production as individual and business buyers are starting to switch towards locally produced products – the launch of Kia smack in the middle of high auto inventory season is also promising. (Read also Micro silver linings in macro abyss https://www.brecorder.com/2019/08/21/518905/micro-silver-linings-in-macro-abyss/published August 21 2019).
In between ifs and buts, it would not come as a surprise if the PTI starts working aggressively towards the re-launch of GDP and CPI with revised base years. Both matters have been long pending, and launched before June 2020, it may serve as a statistical distraction by slightly altering the discourse.
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