THE large-scale manufacturing industry posted a robust growth of 7.85pc during the first seven months (July-January) of the financial year, signalling the revival of economic activities after the protracted gloom of harsh IMF-mandated stabilisation policies and later by the Covid-19 shutdown. Even though the expansion in LSM output remains narrowly based and is not unexpected given the low-base effect, many are projecting GDP will record higher growth than the targeted 2pc this year compared to the 0.4pc contraction the previous year. This is so in spite of new data from the Pakistan Bureau of Statistics showing slightly slower LSM growth in January compared to the two previous months. The rebound in large-scale industry, which represents almost 80pc of the country’s total manufacturing and accounts for 10.7pc of the economy, after a contraction of over 10.5pc last fiscal year, is a hopeful sign. It not only signifies a substantial uptick in the domestic consumption of cement and other building materials, but also an increase in textile and clothing exports, leading many to invest billions in new projects, as well as in the expansion and upgradation of existing ones. Nonetheless the upturn remains fragile. Some likely adjustments such as increased energy prices and the withdrawal of certain tax exemptions for corporations for the revival of the suspended IMF programme could slow down LSM recovery and diversification of businesses. The lower interest rate and cheaper long-term financing for investment are a key factor driving LSM expansion. Any change in the present dovish monetary policy once the IMF programme is again operational could also trigger a negative impact on industrial recovery.

While industrial output has expanded, generating economic optimism, the agriculture sector remains a weak link in the economic chain. With food imports rising by 50.3pc to $5.3bn year-on-year in the first eight months of the fiscal year to February, the widening trade deficit may bring the balance-of-payments position under pressure. Additional burden on the external sector is coming from cotton and yarn imports to meet the local textile industry’s demand in the wake of the failed crop this year. The share of food items — eg wheat, sugar, edible oil, spices, tea, pulses — in the import bill has reached 15.8pc this year compared to 11.3pc last year. Economic revival requires the government to also focus on investment in agriculture to improve output. The poor performance of the farm sector could cancel out the gains of the manufacturing sector.

Published in Dawn, March 19th, 2021