The LSM sector

EDITORIAL: Pakistan Bureau of Statistics (PBS) has updated the quantum index of large-scale manufacturing (LSM) sector and the emerging picture remains extremely disturbing: For July-May 2024-25 the LSMI was negative 1.21 percent.

The upside to this data is that there has been a decline in the negativity — from negative 1.52 percent July-April 2025 against 0.26 percent in the comparable period of the year before, as per the June Economic Update and Outlook released by the Finance Division. This leads to two obvious observations.

First, the May figure is cited as positive 2.29 percent in comparison to May 2024 and 7.39 percent higher when compared to April 2025. Critics of the government would no doubt refer to the concerns over data integrity by independent economists as well as the International Monetary Fund (IMF), which in its September 2024 documents noted that “important shortcomings remain in the source data available for sectors accounting for around a third of GDP, while there are issues with the granularity and reliability of the Government Finance Statistics (GFS).

The authorities are prioritising addressing these weaknesses, supported by Fund Technical Assistance (TA) on the GFS and a new (PPI) Producer Price index.” Work on the TA is targeted to commence this month and till such a time that work is satisfactorily completed the integrity of data will remain questionable.

Second, the PBS data reveals that the sector that almost single-handedly pulled the May 2025 LSMI from the negative to positive territory are two products.

One is sugar with a weightage of 3.43 percent that registered a 44.08 percent growth in May 2025; which begs the question as to why prices of this commodity are so high domestically.

Reports suggest that decisions with respect to allowing exports, which created an artificial shortage domestically, were at best ill-informed and at worst deliberate to benefit the politically powerful sugar mill owners who continue to exercise overwhelming influence on this commodity.

And two, the automobile sector which accounts for 3.10 percent weightage in the calculation of LSMI registered a growth of 43.94 percent in one single month.

Given the time required to assemble one car, this massive rise in one month does not reflect a rise in output but a rise in sales supported by existing inventories. This was substantiated by a study conducted by the Business Recorder research team which concluded that the growth was due to a massive rise in leasing. Textiles account for 18.16 percent with cloth registering positive 0.43 percent growth.

Evidence suggests that the negativity of the LSM sector continues in spite of the decline in the discount rate (from 21 percent in June 2024 to 11 percent in June 2025) mainly because this decline is still double the average in our regional competitors and credit to the private sector has risen from 323.5 billion rupees July to 14 June 2024 to 676.6 billion rupees in the same period of 2024-25; however, this rise is not reflected in higher output but in investment in securities — a charge levelled by independent economists that has not been refuted by the government.

The industrial sector has also identified cross-subsidisation of electricity/gas tariffs as well as higher (unfair) taxes payable by them to fund the government’s expenditure as further reasons for the decline in industrial output.

Even though the capacity of the government team to adjust most of its budgeted policy decisions is severely limited due to the IMF ongoing programme however one would hope that the government can make the appropriate adjustments without transferring the burden on the poor through higher indirect taxes as their onus is greater on the poor than on the rich given poverty levels of 44.2 percent as per the World Bank.

Copyright Business Recorder, 2025