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Contraction in LSM output dims prospects of growth this fiscal year

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  • PBS data shows LSM output drops by 25% in March.
  • Big industries output witnessed highest-ever decline since COVID-19.
  • Steep contraction will increase pace of inflation, put jobs at risk.

ISLAMABAD: A steep contraction in output of large-scale manufacturing (LSM) in March has faded the prospects of achieving a positive growth figure, The News reported Tuesday. 

The delay in the revival of the International Monetary Fund (IMF) programme has choked the economy consequently the LSM contracted massively; as a result, it can halt economic activities, boost already-high inflation and increase unemployment.

Although the Ministry of Finance has projected a provisional GDP (gross domestic product) growth rate of positive 0.8% in its revised estimates, the latest figures of LSM for March 2023 demonstrate that it remained negative by 25%, compared to the corresponding month of the last year.

The big industries’ output witnessed the highest-ever decline since COVID-19 pandemic. In the first nine months (July-March) of the outgoing fiscal year, the LSM witnessed a contraction of 8.1%.

“Keeping in view the performance of the industrial and agriculture sector, the provisional growth figure may turn into negative up to -1%. Earlier, the efforts were underway for turning the provisional figure into positive ranging from 0 to 0.5%,” sources confirmed to The News.

The National Accounts Committee (NAC) is scheduled to hold its meeting within the ongoing week to calculate the provisional growth figures for the outgoing financial year 2022-23.

Dr Khaqan Najeeb, former finance ministry adviser, said the industrial sector had been unable to secure letters of credit due to the country being in a dollar liquidity crunch. 

The lack of access to imports has hurt industrial production as evident in the fall of LSMI output by 8.11% in the first nine months (July-March) of 2022-23.

“The revival of the IMF programme would have ensured a flow of dollars from multilaterals, bilateral and commercial monies to ease the imports and unclog the economic activity,” he said.

“It is likely that growth would be muted in the outgoing fiscal year with a contraction in the manufacturing and agriculture sector. This would create further unemployment and rise inflation due to shortfall in supplies,” he concluded.

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Moody’s says the IMF programme will increase Pakistan’s foreign financing.

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Moody’s, a reputable international rating agency, has stated that Pakistan’s chances of acquiring funding will increase as a result of the recent agreement with the International Monetary Fund (IMF), which offers dependable sources for that purpose from both friendly countries and international financial institutions.

According to a recent Moody’s analysis on Pakistan’s economy, social unrest and tensions could result from Pakistan’s ongoing inflation. The country’s economic reforms may be hampered by increased taxes and potential changes to the energy tariff, it continued.

Moody’s, on the other hand, agrees that the coalition government headed by Shehbaz Sharif of the PML-N is in danger of failing to secure an election mandate, which may potentially undermine the successful and long-lasting execution of economic reforms.

The government’s capacity to proceed with economic changes may be hampered by societal unrest and poor governance, according to Moody’s.

In order to appease the IMF by fulfilling a prerequisite for authorising a rescue package, the government raised the basic tariff on electricity, which coincided with the most recent increase in fuel prices announced on Monday. This report was released by Moody’s.

Food costs have increased in the nation, where the vast majority is experiencing an unprecedented crisis due to the high cost of living, following the government’s earlier presentation of a budget that included a large increase in income tax for the salaried classes and the implementation of GST on commodities like milk.

The most recent comments were made following Islamabad’s achievement of a staff-level agreement for a $7 billion contract that spans 37 months and is contingent upon final approval by the IMF Executive Board.

It states that Pakistan will need foreign financing totaling about $21 billion in 2024–2025 and $23 billion in 2025–2026, meaning that the country’s present $9.4 billion in reserves won’t be sufficient to cover its needs.

Therefore, according to Moody’s, Pakistan is in an alarming position with regard to its external debt, and the next three to five years will be extremely difficult for the formulation and implementation of policies.

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Base Of bilateral relations: China And Pakistan Reiterate Their Support For CPEC

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China-Pakistan economic corridor is a major project of the Belt and Road Initiative, and both countries have reiterated their commitment to it. It remains a fundamental aspect of their bilateral relations.

Vice Chairman Zhao Chenxin of the National Development and Reform Commission of China and Minister Ahsan Iqbal of Planning and Development met in Beijing, where Ahsan Iqbal made this assurance.

The summit made clear how committed China and Pakistan are to advancing their strategic cooperative partnership in all weather conditions.

The focus of the discussion was on how the CPEC was going, with both parties reviewing project development and discussing how the agreement made at the leadership level will lead to the launch of an enhanced version of the CPEC.

In order to improve trade, connectivity, and socioeconomic growth in the area, they emphasised the need of CPEC projects.

The Ml-I Project, the KKH realignment, and the Sukkur-Hyderabad motorway—the last remaining segment of the Karachi-Peshawar motorway network—were all to be expedited.

Expanding the partnership’s horizons to include technology, innovation, education, connectivity, and renewable energy sources was another topic of discussion.

Specifically in the special economic zones being built under the Comprehensive Economic Cooperation (CPEX), Vice Chairman NDRC emphasised the possibility of China investing more in Pakistan.

In addition to expressing confidence in the ongoing success of the two nations’ collaboration, Zhao Chenxin reiterated China’s support for Pakistan’s development aspirations.

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Pakistani government raises petrol prices

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A recent announcement states that the price of petrol has increased by Rs 9.99 per litre, to Rs 275.60 per litre.

The cost of high-speed diesel has also increased significantly, rising by Rs 6.18 a litre. Diesel is now priced at Rs 283.63 a litre.

Furthermore, kerosene now costs Rs 0.83 more per gallon.

The cost of products and services is predicted to rise in response to the increase in petroleum prices, further taxing household budgets and jeopardizing the stability of the economy.

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