In the Country’s economic growth the ministry of finance-government of Pakistan recorded that Pakistan’s manufacturing sector historically, has played a crucial role. It has contributed significantly to exports, accounting for about 71 percent, and has employed 14.9 percent of the labor force.
This underscores the potential for further growth and development in the sector, instilling confidence in the future of Pakistan’s economy.
Through unfavorable global and domestic events the presentation of the large scale manufacturing (LSM) was primarily affected. Since the beginning of FY 2024 supply disruptions and the lasting effects of a flood have been ongoing.
These disruptions have impacted the supply chain and external and fiscal accounts, leading to inflationary pressures and a slowdown in economic activity. Additionally, industrial activity was subdued because of a fall in foreign exchange reserves and pessimistic sentiments in the foreign exchange market. Unprecedented worldwide supply disruptions have further strained the sector. Economic and Political unrest also hindered the economic situation before the election. Economic activity began to rebound in the second half of FY 2024, driven through enhanced confidence and recovery in various sectors, although the pace of growth remains below the necessary threshold. Worldwide demand slump, currency devaluation, and a widening current account deficit severely limited the government’s flexibility, particularly in sustaining fiscal discipline amidst stringent financial situations. It’s important to record that increasing exports without substantial products to export is futile. The dependency on imports is evident in sectors such as automobiles, where a considerable portion of auto parts is sourced from abroad because of the absence of domestic fabrication.
The Government officials also recorded that this reliance on costly imports depletes a substantial portion of the foreign reserves and poses a significant hurdle in national economy. In FY2024, the Textile, Non-metallic mineral products, Iron & steel products, Automobiles, and Tobacco industries were the major contributors to the fall in the LSM sector. However, some export-oriented sectors, like apparel, furniture, leather, and football, saw increased production during the same period. As mentioned, the LSM sector encountered a downturn in FY2024 because of external and domestic challenges.The Statistics revealed that the growth presentation of LSM during July-March FY2024, was in the negative territory, at 0.1 percent, against the negative growth of 7.0 percent in the same period last year. Total 11 sectors recorded optimistic growth during the period, counting Food, Wearing apparel, Leather products, Wood products, Coke & petroleum products, Chemicals, Pharmaceuticals, Rubber products, Machinery and equipment, Furniture, and Other manufacturing. The Sectors that registered negative growth are Beverages, Tobacco, Textile, Paper & Board, Nonmetallic mineral products, Iron & Steel products, Fabricated metal, Computers, electronics & optical products, Electrical equipment, Automobiles, and Other transport equipment. Statistics also revealed that on a year-on-year (YoY) basis, LSM’s growth was 2.0 percent in March 2024, as against to fall of 26.4 percent in the corresponding month previous year. Meanwhile, on a month-on-month (MoM) basis, LSM’s growth fell by 9.4 percent in March 2024, compared to 3.1 percent fall in February 2024.
The Manufacturing and Mining sectors, with their significant contribution of 13.6 percent to the GDP in FY 2024, have the potential for further growth. According to the National Account Statistics, these sectors saw a growth of 2.4 percent and 4.9 percent, respectively, compared to a fall of 5.3 percent and 3.3 percent previous year. IN Pakistan this optimistic trend is mainly noteworthy, where Manufacturing plays a significant role in the industrial sector, making up 11.9 percent of the GDP. The manufacturing sector is diverse, consisting of Large-Scale Manufacturing (LSM), Small-Scale Manufacturing (SSM), and Slaughtering, according to the System of National Accounts (SNA). Historically, LSM dominates the manufacturing sector, accounting for 69.3 percent of Manufacturing and 8.2 percent of the overall GDP. Small-scale manufacturing and slaughtering comprise 19.5 percent and 11.3 percent of the manufacturing sector, contributing 2.3 percent and 1.3 percent to the GDP, respectively. The Performance of the LSM is a key indicator of the overall industrial health, and it is assessed monthly through the Quantum Index of Large Scale Manufacturing Industries (QIM). During July-March FY 2024, LSM registered a slight fall of 0.1 percent, a significant improvement from the 7.0 percent fall last year. However, it’s significant to acknowledge the challenges faced by the textile sector, a chief component of LSM. Rising input costs, lower export values, competition from China, and higher power tariffs led to a significant reduction in production. The discontinuation of the Export Finance Scheme and high interest rates further exacerbated the condition. In the Food group, wheat and rice milling saw minor falls despite the better harvests, while sugar production slightly increased owing to higher sucrose recovery rates despite lower output. Construction activities fell because of higher financial costs, reduced incomes, and lower government spending. Furthermore, the government of Pakistan mentioned in the report that tight monetary situations and political unrest also played a role, along with increased coal prices and fell demand impacting cement production. Additionally, sluggish activity in industries like automobiles and heavy machinery led to lower steel utilization. The Pharmaceutical sector enhanced because of stable exchange rates and higher medicine prices, but the automobile industry faced reduced production owing to low demand, high borrowing costs, and import restrictions.