Decline in Pakistan’s Large-Scale Manufacturing Sector: Fiscal Year 2023 Analysis

KARACHI: The fiscal year 2023 witnessed a notable decline of 10.26 percent year-on-year in the output of large-scale manufacturing (LSM) industries, as reported by the Pakistan Bureau of Statistics on Tuesday.

The LSM sector, responsible for approximately 80 percent of industrial production, encountered a significant contraction of 14.96 percent in June, marking the tenth consecutive month of negative growth during the outgoing fiscal year. This decline was primarily attributed to reduced output in the textile and clothing sectors, which are vital contributors to the country’s export earnings.

The downturn in the LSM sector had far-reaching consequences for employment, leading to job losses as industries operated at reduced production capacity. Notably, the LSM sector employs around 20 percent of Pakistan’s total labor force.

The concerning performance of the LSM sector raises alarms about the broader economic outlook of the nation, compounded by existing challenges such as high inflation, sluggish growth, and fiscal imbalances.

Comparing May of this year to the same month last year, the LSM sector recorded a decline of 14.37 percent. This followed a decrease of 21 percent in April, which was less severe than the 25 percent drop in March. Prior months also displayed reductions, including 11.6 percent in February and 7.9 percent in January. In December 2022, a modest decline of 3.51 percent was observed.

In November 2022, a negative growth rate of 5.49 percent was registered, while October 2022 witnessed a drop of 7.7 percent. In September 2022, there was a contraction of 2.27 percent compared to the same month the previous year. August saw a marginal uptick of 0.30 percent following a 1.67 percent decline in July, which marked the initial month of FY23.

In FY22, the LSM sector had shown robust growth of 11.7 percent year-on-year. These production estimates for LSM industries were established using the new base year of 2015-16. Notably, only four out of 24 LSM sectors displayed marginal production growth in FY23, with the remainder experiencing contraction.

Within the textile sector, which contributes approximately 60 percent to total exports, production witnessed a decline of 18.68 percent in FY23 compared to the previous year. This decline was particularly pronounced in yarn (22.09 percent) and cloth (12.39 percent). However, garment production grew by 27.16 percent in FY23.

In the food group, wheat and rice production declined by 10.31 percent, sugar and bakery products by 15.31 percent, and blended tea by 10.65 percent. Notably, the production of cooking oil increased by 13.57 percent, and vegetable ghee saw a growth of 10.64 percent.

The petroleum products sector registered a negative growth of 13.39 percent in FY23, primarily due to decreased production of petrol and high-speed diesel. Most other petroleum products experienced a slowdown, except for jet fuel, jute batching oil, and specific petroleum products.

The auto sector also faced a substantial decline of 49.99 percent in FY23, with almost all types of vehicles experiencing reduced production except for buses and diesel engines.

Additionally, the production of iron and steel declined by 5.12 percent, pharmaceutical products by 28.85 percent, rubber items by 4.97 percent, and fertilizers by 9 percent in FY23 compared to the previous year.