LSM fears!

Pakistan’s manufacturing sector is in a recession, but textile isn’t. That’s the only possible straw to hold on to at the moment. All else seems to be crying out despair.

Latest data release by Pakistan Bureau of Statistics (PBS) shows that August 2019 saw manufacturing activity contract by 7 percent over last year, taking the average 2MFY20 growth to a negative 6 percent. Both are worst large-scale manufacturing performances since FY09.

In the fiscal year 2009, the dreadful year when LSM contracted by 6.04 percent, the first two months had witnessed a fall of an average 5.55 percent. The year so far has been worse. Which coils back the discussion to earlier fears voiced by Dr Ehtisham Ahmad, senior fellow at the LSE and Pakistan’s Senior Advisor to the IMF Executive Board in 2008, who 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)

Will LSM’s full year growth be worse than FY09? It’s difficult to say. Neither the multilaterals nor local economists periodically publish disaggregated GDP forecasts. Asian Development Bank’s report earlier this year had forecast that growth in Pakistan’s manufacturing sector would remain “subdued” which is not the same as contraction.

One fragile straw to catch on is the fact that textile sector has grown so far; a small 0.06 percent against the contraction of 0.25 percent in 2MFY19. But that’s the kind of growth rate that the sector has been exhibiting in the LSM index. One could argue that LSM index does not adequately represent textile sector. But that’s opening an entirely different can of worms.

But textile’s faint ray of hope is overshadowed by reduced public sector development spending, and across the board weakness in private sector which is struggling with low consumer demand amid high inflation and higher interest rates. No wonder, almost all other major sector in the LSM index witnessed contraction in 2MFY20.