The last figure for large-scale manufacturing showed that it suffered a 1.8 percent contraction in the first seven months of the fiscal year, when compared with the previous year. The government will clearly stress that exports are up 8.43 percent year-on-year, and that there was a $700 million surplus in the first seven months of the financial year, compared to the deficit of $1.7 billion the year before. As large-scale manufacturing includes the textile sector, it means that it is not exporting enough, even though it has registered some growth. Another industry whose slowdown was indicated was construction: there has been a decline in cement, iron and steel products, electrical equipment and furniture (used after construction is over).
This indicates that the government’s success in taming inflation has failed to impress the consumer, and thus the entrepreneur. The interest rate has been brought down from a high of 22 percent last February to 12 percent at present, but that has not sufficiently stimulated manufacturing. The State Bank of Pakistan’s Monetary Policy Committee kept the rate steady, which indicates its fear of inflationary pressures. It indicated further that the MPC probably largely agrees with the US Federal Reserve, which is worried that US core inflation has not come down enough. If US inflation persists, then Pakistan would face difficulties exporting, which would further affect large-scale manufacturing. It is almost as if economic decision-makers feel that the present recovery is artificial, and that the pattern of apparent recovery, followed by profligate borrowing which brings bout a bust characterized first by low growth and high inflation, will be repeated. In that case, the present signs of recovery are unlikely to convince consumers to buy or investors to invest.
Part of Pakistan’s problem is that it requires exports to revive large-scale manufacturing, create jobs, earn the foreign exchange needed for debt servicing and thus avoid defaulting. Exports depend on demand in foreign countries, which is determined by their governments’ policies and their economies’ performances. While the government can do something not to impede exports, indeed to encourage them, it can only do so much. Those involved in large-scale manufacturing will have to examine how they can improve their performance. It should not be ignored that no modern economy of any size is possible without a vibrant large-scale manufacturing sector.
