KARACHI: Private sector’s non-participation in the economic activities hit the growth, while the industrial sector was particularly hard hit by this situation.

The State Bank in its annual report for 2008-09 issued on Thursday mentioned the plunge in the private sector credit, which hampered growth.

‘The collapse of private sector credit in second half of FY09 resulted in a net annual contraction of six per cent. Though, generally the second-half of each year coincides with retirement phase of the credit cycle, the decline in credit during second half of FY09 was exceptional,’ said the SBP report.

The detailed report covered almost all sectors of the economy. While analysing the industrial sector in detail, the report said Pakistan’s industrial sector witnessed its worst-ever performance during FY09, with production dropping by 3.6 per cent in contrast to 5.5 per cent growth a year earlier.

‘Indeed, the overall industrial growth has been in the red only twice in Pakistan’s history and this is by far the largest,’ the report observed.

The exceptionally poor FY09 industrial growth performance was caused principally by domestic developments, said the SBP report.

‘Structural problems took their toll in the form of severe energy shortages, the circular debt issue, etc., even as the economy was hit by a deterioration in security and law and order situation, and lower demand for major consumer durable goods as real incomes weakened and credit contracted,’ the report noted.

The SBP said that to make things worse the net global economic contraction (first time since 1930s) did not allow export-based industries to compensate for depressed domestic demand.

Aside from mining and quarrying, value-addition by all the sub-sectors, including manufacturing, construction, and electricity and gas distribution registered declines during the year under review. A large part of the drop in industrial production was explained by a record downslide in production of large scale manufacturing (LSM) sub-sector, which typically constitutes about 50 per cent of the industrial value-addition to GDP.

However, the decline in construction industry was also significant and continued slump in value-addition of electricity and gas distribution sub-sector also contributed to the downfall in industrial production.

The construction industry, which constitutes around 2.4 per cent of GDP, registered a decline of 10.8 per cent in FY 09, the largest fall in 37 years.

Construction industry in FY09 had to put up with sharp increase in building material prices index during the first eight months of the year, significant cut in disbursement of PSDP funds and dearth of financing facilities.

The SBP also highlighted the severe problem of electricity, which damaged the industrial growth.

The electricity and gas distribution sector failed to recover from last year’s decline in value–addition to record a further fall of 3.7 per cent during FY09, said the report.
The decline in value-addition was partly due to significant reduction of investment in expansion of transmission and distribution system during the year.

The report pointed out that despite a sharp contraction in LSM production, Small Scale Manufacturing (SSM) recorded a healthy growth of 7.5 per cent during FY09.
The decline in manufacturing production was heavily concentrated in consumer durables and sugar industries, the report said.