LSM posts 5.38pc growth in 2017-18, missing target

By Tariq Ahmed Saeedi
August 21, 2018

KARACHI: Large scale manufacturing (LSM) grew 5.38 percent during the last fiscal year of 2017/18 as steel and cement production continued to scale up on development spending, official data showed on Monday.

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Pakistan Bureau of Statistics (PBS) data showed that iron and steel production recorded an impressive 21.78 percent growth in FY2018, while non-metallic and mineral output, including cement, rose 11.04 percent.

LSM growth, however, remained much below the annual target of 6.3 percent. Adnan Sheikh, assistant vice president at Pak Kuwait Investment Co. said it might be due to impact of the last month in which LSM posted a marginal 0.51 percent growth year-on-year, but the sector fell 8.3 percent during the month as compared to the previous month of May.

“This trend is evocative of last year when overall index of May was more than June,” Sheikh added. “Ramazan factor might also have dampened the upshot.”

Businessmen are looking forward to new government which recently took charge that how it deals with much sought-after tariffs restructuring demand to leverage LSM, which accounts for 80 percent of industrial sector, to fetch economic dividends.

Pakistan Business Council CEO Ehsan Malik said the government has to reconsider its policies of keeping gas tariff low for domestic consumers and high for industrial users. “After all, jobs are to be created by industrial sector,” Malik said.

In July-June, fertiliser sector was the big looser on pricey and interrupted gas supply. Fertiliser output slid 9.88 percent during the last fiscal year. Three major fertiliser manufacturing plants, namely Agritech, Pakarab Fertilizers and Dawood Hercules remained shut-down round the last year due to gas conundrum.

Imran Khan-led Pakistan Tehreek-e-Insaaf government vowed to create 10 million jobs over its next five-year stint. Karachi Chamber of Commerce and Industry President Muffasar Malik said the intention finds basis in housing policy to construct five million units.

“This is an overambitious goal,” Malik argued. Analysts said interest rate hikes are likely to increase cost of production that would hit hard cement, automobile and other sectors.

Cost of capital has already started accelerating as the central bank seems gung-ho to address deteriorating external account position. Current account deficit reached 5.6 percent of GDP in FY2018 from 4.7 percent a year earlier, while foreign exchange reserves dipped by four billion dollars to just over $10 billion from December last year to July-end.

The State Bank of Pakistan has pushed the benchmark interest rate by 175 basis points since January. “By the end of this fiscal, the cumulative increase is expected to come at around three percent,” Sheikh of Pak Kuwait Investment Co. said.

Sheikh also put in a caveat on austerity commitment. “If it drives development spending down the key growth propellers cement and steel sectors would be hurt,” he said. “But, if imports are restricted the local imports-substitute industries should have leg-ups to encourage industrial production.”

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