ISLAMABAD: The production of large scale manufacturing (LSM) may fall massively during the current fiscal year as it already registered a decline of 5.4 percent during July – March 2019/2020.
The LSM sector declined by 5.4 percent during July-March FY2020 as compared to 2.34 percent decline during the same period last year, according to the Pakistan Economic Survey 2019/2020 released on Thursday.
LSM has 78 percent share in manufacturing and 9.5 percent in GDP whereas small scale manufacturing accounts for 15.2 percent share in manufacturing and 2.04 percent share in GDP.
The LSM sector was not able to withstand the constrained economic environment triggered by exchange rate depreciation and contractionary monetary and fiscal policies.
The distress continued during the whole current fiscal year, the LSM growth plunged to -5.4 percent during July-March FY2020 compared to -2.34 percent during last fiscal year.
The major contributing sub-sectors such as Textile and Food, Beverages and Tobacco have experienced negative growth.
Other sub-sectors such as Iron and Steel Products, Coke and Petroleum Products and Automobile growth have also turned negative during the period which dampened the overall growth of LSM.
Year-on-year (YoY), LSM dived by -22.9 percent in March 2020 as compared to -7.35 percent decline in March 2019.
During FY2020, required fiscal and monetary adjustments, such as flexible exchange rate and austerity drive, were adopted to stabilize the economy.
Nevertheless, external imbalances were eased to some extent but some short-term repercussions had to be confronted domestically, specifically by industrial sector. Pak rupee depreciated by 3.9 percent during Jul-Mar FY2020 which increased the cost structure of industries in general, and particularly for those relying on imported raw materials.
Further, policy rate was kept high to contain inflation which on the other hand discouraged investment. Subdued demand further hampered the overall production and performance of the industry.
Certain sector specific issues also contributed to the decline in LSM. Automobile sector alone accounted for major portion of contraction in LSM. Its prices witnessed multiple upward revisions due to Pak Rupee depreciation which held the potential buyers refrained from making booking and purchases.
The shift in power generation away from furnace oil has reduced the fuel’s demand and affected the coke & petroleum industry output.
Upward adjustment in electricity prices dented domestic steel producers’ margins.