Major sectors challenge govt’s claims of LSM output ‘recovery’

ISLAMABAD: Major manufacturing and export-oriented sectors have challenged the government’s claims of a recovery in large-scale manufacturing output, warning that industrial activities continue to contract amid soaring costs, weak demand and high taxation.

Industry leaders say more than 150 industrial units have shut down in the past 18 months, while surviving factories are operating at barely 50 percent of installed capacity.

The textile sector, Pakistan’s largest export earner, is facing a deepening crisis. Kamran Arshad, Chairman of the All Pakistan Textile Mills Association (APTMA), told Business Recorder that around 150 textile units have closed due to record-high gas and electricity tariffs, high interest rate, heavy taxation, and delayed refunds. These closures have reduced production, weakened exports, and rendered hundreds of workers jobless.

Pakistan’s large-scale manufacturing rebounds with 4.08% growth in Q1 FY2025-26

“Pakistan’s textile industry is sliding deeper into trouble,” Arshad said, pointing to official data that shows declining exports and rising costs, despite repeated government assurances of recovery. Textile exports fell to USD1.43 billion in November 2025, down 2.05 percent year-on-year. Overall exports plunged 15.35 percent during the month, while imports rose 5.42 percent, pushing the trade deficit to USD2.86 billion—nearly 33 percent higher than last year.

Although textile exports during July–November 2025-26 increased marginally by 3.15 percent to USD7.85 billion, exporters argue that the growth is misleading. Factory utilization remains weak, margins are thin, and many firms are struggling to survive under the burden of high energy tariffs, interest rates, and taxation.

Former Chairman of the Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA), Ijaz Khokhar, said that most of the large-scale textile units that once operated two shifts have now been reduced to a single shift. Citing APTMA data, he noted that over 100 spinning units have shut down, causing shortages of yarn and fabric—key inputs for value-added exports. Several large manufacturers have also closed their apparel sections.

Khokhar warned that 2026 would be even more challenging, especially for small and medium enterprises (SMEs), due to stringent European Union compliance requirements. Referring to a World Bank report, he said that meeting EU standards can cost up to €200,000 annually—an amount exceeding the yearly turnover of most Pakistani SMEs—severely undermining their competitiveness.

The steel sector is facing an equally severe crisis. Javed Iqbal Malik, Chairman of the Pakistan Association of Large Steel Producers (PALSP), said Pakistan’s steel industry — supporting 45 downstream sectors—is operating at just 30–50 percent capacity. The sector is producing 3.8 million tons annually against an installed capacity of 9 million tons, despite having invested Rs600 billion in modern, low-emission technology.

Malik said crushing taxation, sky-high energy costs, and collapsing demand have pushed many steel mills to closure, while surviving units are operating at losses. The sector contributes Rs150 billion in revenues, supports over 200,000 direct jobs, substitutes USD2 billion in imports, and generates significant value across the economy. Every dollar spent on steel creates USD2.50 in value-added activity, and two steel jobs create 13 more across the supply chain.

He identified indirect taxation as the main cause of demand destruction. Minimum sales tax on steel surged from Rs10,350 per ton in 2018-19 to as high as Rs42,000 per ton in 2024-25—a nearly fourfold increase. “This single measure collapsed demand, reduced consumption, and ironically cut government revenues by nearly 50 percent,” Malik said.

As demand declined, scrap imports—a major revenue source—fell by nearly half between 2023 and 2025. The fallout includes lower electricity consumption, rising capacity payments to Independent Power Producers (IPPs), and a surge in tax and power theft as informal producers flood the market with substandard steel.

A comparison with Bangladesh highlights Pakistan’s policy failures. With similar capacity, Bangladesh produces 6.5 million tons of steel compared to Pakistan’s 3.8 million tons, driven by pro-demand policies. Bangladesh levies a per-ton VAT equivalent to just Rs6,264, provides up to 90 percent import protection on rebars, maintains lower corporate taxes, and offers competitive power tariffs.

Malik said Pakistan could revive the steel sector by aligning tax and energy policies with industrial growth. At full capacity, the sector could consume 7 billion kWh of electricity annually—up from the current 3 billion kWh—helping absorb surplus power and saving the government Rs60–70 billion in IPP capacity payments. Without urgent corrective action, he warned, Pakistan risks losing a strategic industry, along with jobs, revenue, and industrial self-reliance.

Industry leaders also criticized the government’s move to reduce tariff protection without addressing cost competitiveness, smuggling, tax evasion, and misuse of exemptions in erstwhile FATA/PATA. They warned that such policies could collapse the local steel industry, turning manufacturers into importers and traders.

Agriculture and construction indicators also show weakness. The Federal Committee on Agriculture estimates cotton output at 6.85 million bales, down 3.3 percent, while rice and maize production declined by 3.2 percent and 6.7 percent, respectively. Cement dispatches in November 2025 fell 3.47 percent year-on-year to 4.14 million tons, though total dispatches during the first five months of 2025-26 rose 11.54 percent to 21.45 million tons.

Copyright Business Recorder, 2025