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Big industries output declines for eighth straight month

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  • Pace of contraction sharpens to 11.59% in February.
  • Both domestic and global factors have contributed to this decline. 
  • Decline is a significant concern for country’s economy.

ISLAMABAD: In an alarming development, the large-scale manufacturing (LSM) sector — which accounts for almost one-fifth of the country’s economic growth — contracted for the eighth consecutive month.

The pace of contraction sharpened to 11.59% in February compared to the same month of last year, data released by the Pakistan Bureau of Statistics (PBS) showed.

This decline is a significant concern for the country’s economy because of the LSM sector’s dismal performance, the gross domestic product (GDP) growth will also suffer a significant blow this fiscal year.

Industrial output witnessed a decline of 5.56% in the first eight months (July-February) of the ongoing fiscal year 2022-23 compared to the same period of the last financial year. Over the previous month (January), LSM output went down by 0.5%.

Both domestic and global factors have contributed to this decline, including high energy costs, rupee devaluation, and the government’s tightening of monetary and fiscal policies. These factors have limited imports due to a lack of dollars, contributing to the negative growth of the sector.

The global economic slowdown has added to the woes of industries in Pakistan, with many businesses scaling back operations or reducing operating hours, while others have shut down their plants. Ongoing economic and political instability in Pakistan has also been linked to the decrease in industrial output by independent political economists.

Uncertainty in the country has led to a decrease in investor confidence, resulting in a slowdown in manufacturing activities as well. 

Moreover, the government’s inability to provide a stable and conducive environment for businesses has further worsened the situation, with investors hesitant to make long-term investments in the country. Combined, these factors have contributed to the ongoing nosedive of the LSM sector, which could impact Pakistan’s overall economic growth.

The LSM sector has witnessed a decline in production from August 2022 to February 2023, the breakdown shows:

  • 0.02% decline in August, 
  • 2.7% decline in September, 
  • 7.63% decline in October, 
  • 6.15% drop in November, 
  • 3.51% decrease in December, 
  • 7.9% contraction in January 2023. 
  • 11.59% decline in February

All major and small sectors’ output contracted in February, including textile, food, coke and petroleum products, chemicals, automobile, pharmaceuticals, cement, fertilisers, iron and steel, furniture, leather products, electrical equipment, and non-metallic mineral products.

To combat soaring inflation, which clocked in at 35.4% in March, the State Bank of Pakistan (SBP) raised the discount rate to 21%. Since July 2021 when inflation was at 7%, the bank has raised the rate by threefold or 1,400 basis points, hindering industrial activities by making bank financing more expensive.

In FY22, Pakistan’s LSM sector grew by 11.7% over FY21, aided by rising global demand and favourable government policies to boost GDP growth, with big industries contributing a significant portion to the economy.

According to the PBS data, on a year-on-year basis, in February the following industries showed a significant decline:

  • Textiles — 19.67%, 
  • Pharmaceuticals — 25.47%, 
  • Food — 2.43%, 
  • Garments — 2.99%, 
  • Non-metallic minerals — 1.33%, 
  • Iron and steel — 9.19%, 
  • Chemicals — 14% (of which chemical products output was up 2.96% while fertiliser was down 25%) 
  • Football output — 17.3% 
  • Machinery and equipment output — 28.45%, 
  • Automobiles — 64%, 
  • Computer, electronics, and optical products — 39.7%; 
  • Furniture — 12.7%, 
  • Cement — 3.4%, 
  • Wood products —74.85%, 
  • Tobacco — 10.6%, 
  • Rubber products — 4.88%,
  • Coke and petroleum products — 6.35%, 
  • Leather products — 1.6%, 
  • Other transport equipment output — 31.2%,  
  • Cotton cloth — 17.7%,
  • Cotton yarn by 30.1%

Output during the July-February fiscal year 2022-23 as compared to the same period of FY22 has increased only in wearing apparel (garments) by 35.5%, leather by 3.85%, furniture by 58.45%, and football by 35.8%.

During these eight months of the ongoing fiscal year, the outputs of the following industries declined:

  • Food output — 1.95%, 
  • Beverages — 6.14%, 
  • Tobacco — 20.4%, 
  • Textiles — 14%, 
  • Wood products — 68.65%, 
  • Paper and board — 3.4%, 
  • Coke and petroleum products — 9.4%, 
  • Pharmaceuticals —22.4%, 
  • Rubber products — 7.3%, 
  • Non-metallic mineral products — 9.1%, 
  • Computer, electronics, and optical products — 25%, 
  • Machinery and equipment — 38.6%, 
  • Automobiles — 38.6%. 
  • Cement — 11.8%, 
  • Iron and steel — 3.9% 
  • Fabricated metal — 12.8%

Business

The gold price in Pakistan today

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According to the All Sindh Sarafa Jewellers Association, the price of 10 grammes of 24 karat gold increased by Rs772 to Rs184,928 from Rs184,156, while the price of 10 grammes of 22 carat gold increased to Rs169,517 from Rs168,810.

These oscillations are strongly correlated with shifts in the US dollar’s value, demonstrating the complex interplay between gold prices and exchange rates.

This emphasises how local gold prices are impacted by events related to the global economy.

On the other hand, the cost of 24-karat silver was constant at Rs 2,570. Globally, too, the price of gold increased somewhat by $9 to $2,057 per ounce.

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Pakistan receives a $2 billion loan from China, according to the finance minister

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The $2 billion loan was one year ahead of schedule and became due in March. According to reports, Beijing had informed Islamabad of the decision.

The International Monetary Fund granted Pakistan’s cash-strapped economy a $3 billion standby arrangement last summer, but the country is still battling to recover from the financial crisis.

According to ratings firm Fitch, one of the top concerns confronting the next administration would be obtaining funding from bilateral and multilateral partners due to Pakistan’s precarious foreign situation, as was stated last week.

This event occurs one month after Anwaar-ul-Haq Kakar, the acting prime minister, asked for a $2 billion loan to be rolled over for a year in a letter to his Chinese counterpart.

In his letter, Kakar also expressed gratitude for China’s efforts to lessen Pakistan’s load

of foreign payments.

It is to be noted that Pakistan acquired safe deposits of $4 billion from China to address the balance of payments issue.

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“Ready to work with Pakistan’s new government,” the IMF said.

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In response to the former premier’s request, IMF Director of Communications Julie Kozak stated, “I’m not going to comment on ongoing political developments,” during a news conference.

She continued by saying that they “look forward to working on policies to ensure macroeconomic stability and prosperity for all of Pakistan’s citizens with the new government.”

In addition to stating that the plan is “supporting the authority’s efforts to stabilise the economy and to, of course, with a strong focus on protecting the most vulnerable,” Kozack said the lender increased the total disbursements under the Standby Arrangement (SBA) to $1.9 billion.

This has been accomplished by closely adhering to budgetary constraints and safeguarding the social safety net. In order to keep foreign exchange reserves growing and rein in inflation, a strict monetary policy stance has been maintained, the speaker stated.

The PTI founding chairman decided to write a letter to the international lender, asking it to demand an audit of the election held on February 8 before it proceeds with discussions with Islamabad for a new loan programme. This move prompted the IMF to release its statement.

In response to the former premier’s request, IMF Director of Communications Julie Kozak stated, “I’m not going to comment on ongoing political developments,” during a news conference.

She continued by saying that they “look forward to working on policies to ensure macroeconomic stability and prosperity for all of Pakistan’s citizens with the new government.”

In addition to stating that the plan is “supporting the authority’s efforts to stabilise the economy and to, of course, with a strong focus on protecting the most vulnerable,” Kozack said the lender increased the total disbursements under the Standby Arrangement (SBA) to $1.9 billion.

This has been accomplished by closely adhering to budgetary constraints and safeguarding the social safety net. In order to keep foreign exchange reserves growing and rein in inflation, a strict monetary policy stance has been maintained, the speaker stated.

The PTI founding chairman decided to write a letter to the international lender, asking it to demand an audit of the election held on February 8 before it proceeds with discussions with Islamabad for a new loan programme. This move prompted the IMF to release its statement.

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