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BR
October 19, 2023
EDITORIAL:
Pakistan Bureau of Statistics (PBS) released very encouraging data on large-scale manufacturing (LSM) output on Monday: an 8.44 percent rise in August this year against the previous month, a 2.52 percent rise compared to August last year (a period when the country was subjected to unprecedented heavy floods that displaced an estimated 30 million people) and 0.50 percent growth July-August this year compared to the comparable period of last year.
Two observations are in order. First, the rise in the LSM in some sectors in August 2023 is reflective of a reduction in the negativity from the July 2023 index: food (weightage 110.69) registered negative 8.74 percent July-August FY23 against negative 5.59 percent in August this year, pharmaceuticals (weight 5.15) registered negative 32.11 percent July-August FY2023 to negative 28.91 percent in August FY24, machinery and equipment registered negative 37.81 percent July-August FY23 against negative 32.47 percent in August FY24. What is baffling is that coke and petroleum products (weightage 6.66) registered negative 16.06 July-August FY23 against negative 26.73 in August FY24 but is included in the list of items showing a positive growth rate.
Second, garments with a weightage of 6.08 showed a rise in growth from the July-August FY23 figure of 36.25 to 41.21 in August FY24; however, this rise did not translate into higher exports as the State Bank of Pakistan website lists exports of garments July-August 2023 at 568 million dollars against 635.7 million dollars in the comparable period of the year before.
Textiles registered negative 19.07 percent growth in July-August FY23 against negative 16.20 percent in August FY24 and here too exports of the textile group were down from 3.148 billion dollars July-August 2022 to 2.735 billion dollars July-August 2023.
The rise in output may have contributed to a decline in prices – PBS data revealed that in August 2023 Consumer Price Index was 27.4 percent against 28.3 percent in July 2023; however, in July 2022 the rate was 24.9 percent (3.4 percent lower last July relative to July 2023) though the August 2022 rate was comparable at 27.3 percent. What requires clarification is a consumer price index of 31.4 percent in September this year, a rise of 4 percent from the previous month, in spite of a reported rise in LSM growth rate.
The Finance Division website gives the LSM growth rate for last fiscal year (July 2022-June 2023) at negative 10.3 percent with the June 2023 figure of negative 15 percent.
However, with the staff-level agreement on the Stand-By Arrangement with the International Monetary Fund reached on 29 June this year, inflation understandably rose due to an increase in administered prices and the discount rate – input costs of LSM – which begs the question as to what was the motivating factor behind the LSM growth in July and August 2023.
Skeptics may well dismiss this as data manipulation especially as major exporters are lamenting the rise in input costs and seeking some form of monetary and fiscal incentives to raise output that, if granted, would violate the SBA agreement.
It is, however, relevant to note that the LSM base was so low that output uptick was the only way for many units (particularly the two subsectors with the largest weightage notably sugar and wheat) to remain operational. Although, one may draw some comfort from the rise in LSM, yet it raises several questions that require a plausible explanation.
