The pace of decline in Pakistan’s major industries accelerated to almost 12% in February compared to the same month last year, as the sectors struggle under the weight of supply-chain disruptions, rising fuel prices, political unpredictability, and a slowing economy.
The Pakistan Bureau of Statistics (PBS) said on Monday that the output rate for Large-Scale Manufacturing (LSM) businesses fell by 11.6% in February compared to the same month last year. The contraction was deeper than the market anticipated, although it was expected that the industrial sector would have overall negative growth this fiscal year.
Due to import limitations that have led to a shortage of imported raw materials, Pakistan’s manufacturers are closing one after another. In addition to raising the cost of raw materials and making business models unprofitable, the sharp currency devaluation.
According to a recent report by the World Bank, declining foreign exchange reserves, which currently stand at only $4 billion, administrative import controls, supply-chain disruptions caused by flooding, high fuel prices, policy uncertainty, and the slowdown in domestic and global demand have all had an impact on industry and service sector activity.
The current fiscal year’s industrial and agricultural sectors are expected to have negative growth, according to World Bank projections, which put the overall Gross Domestic Product (GDP) growth rate at just 0.4%. The persistent decline in consumer and business confidence suggests that activity will remain muted in the upcoming months.
To account for exports and remittances, the government is permitting imports equal to monthly inflows; however, this approach has proven to be too expensive for industries. Supply shortages result from the government’s reduction of imports to a range between $2 billion and $2.5 billion per month.
The major industries experienced widespread shrinkage with 18 of the 22 sectors experiencing reduced production over the first eight months (July-February) compared to a year ago. During the first eight months, production only rose in the clothes, leather goods, furniture, and other industrial sectors.
Large industries make significant contributions to tax income and employment creation, thus any change in their growth has an overall negative influence on government and corporate confidence. Nearly a tenth of the nation’s output comes from the LSM sector, but as the government struggles to add jobs, a continued drop in the sector’s share and growth may generate major issues.
Pharmaceuticals and autos were the two industries most negatively impacted by the import ban, both of which had considerable declines in sales during the first eight months of the current fiscal year. The production of chemicals, non-metallic mineral products, machinery and equipment, and transport equipment was also down.