Qudsia Bano

Pakistan's Large Scale Manufacturing (LSM) sector has shown promising signs of recovery in the first half of the ongoing fiscal year (1HFY24), according to recent data. However, experts warn that sustaining this growth will require overcoming several persistent challenges. The LSM sector, a critical component of Pakistan's industrial output, recorded increased activity in November and December 2023 on both year-on-year (YoY) and month-on-month (MoM) bases. This recovery marks a notable shift from the previous fiscal year, which saw a significant contraction.

Dr Farooq Nadeem, a senior economist at Standard Charter Bank, attributes this positive trend to several factors. "The relaxation of import restrictions, lower international commodity prices, and improved availability of raw materials have been instrumental in the recent uptick in LSM output," he explained. "Moreover, the revival in business and consumer confidence towards the end of 1HFY24 has also played a crucial role." "Despite these encouraging signs, the path to sustained growth is fraught with challenges. The continuation of tight monetary policy in major economies and slower global GDP growth have dampened demand for traditional Pakistani exports. Domestically, high inflation, elevated energy costs, higher nominal wages, contractionary monetary policy, fiscal consolidation, and political instability continue to constrain industrial activity," he stressed.

"While the current rebound is promising, the underlying structural issues must be addressed to ensure long-term growth," noted Dr Waqar Khan, a senior analyst at the Center for Economic Research in Pakistan (CERP). "The high inflationary environment and costly energy are significant hurdles that could stifle the momentum we are seeing in the LSM sector." The labor market data from 1HFY24 also reflect a mixed picture. There was a notable deterioration in industrial employment in Punjab and Sindh compared to the same period last year. Additionally, the State Bank of Pakistan's business and consumer confidence surveys indicated a slight decline in employment sentiments in both the services and industrial sectors. "Despite these labor market challenges, the agriculture sector's rebound has had a positive knock-on effect on services, particularly in wholesale and retail trade, transport and storage, and hospitality," Waqar emphasized, stressing that for this moderate recovery to be sustained, the industry and services sectors must contribute more significantly.

"Developing a robust domestic supply chain to reduce reliance on imported raw materials and technology is crucial," the CERP analyst noted. "Additionally, enhancing labor productivity through investment in skill development and focusing on increasing crop yields with better water management and high-yielding, climate-resilient seed varieties are essential." Looking ahead, the experts agree that while the initial signs of recovery in the LSM sector are encouraging, a comprehensive approach is needed to address the multifaceted challenges that lie ahead. Policymakers are urged to implement strategic measures that foster industrial growth, stabilize the labor market, and mitigate inflationary pressures to build a resilient and sustainable economic future for Pakistan.

Credit: INP-WealthPk