KARACHI, Dec 30: The State Bank of Pakistan has bluntly questioned the credibility of the production data of large scale manufacturing (LSM) collected and disseminated by three official agencies. It has, therefore, reported the LSM growth figures for first quarter of the current fiscal year “with strong reservations” in its quarterly report released on Monday.
In its first quarterly report of economic performance for the period July to September this year, the SBP reveals a drop of over 50 per cent in LSM production. The SBP has reported 2.2 per cent growth in LSM during July to September 02 period as against 4.8 per cent growth reported in same period of 01. The SBP report finds this drop in LSM growth “puzzling and inconsistent with the other aligned indicators, such as corporate earnings growth, manufactured exports expansion, domestic sales tax expansion and imports of raw material and machinery.”
The LSM performance reported by the SBP is based on provisional data of 70 manufactured items as against 95 items covered previously. “Unfortunately, the lower coverage of items and its non-conformity with national accounts data at this stage, makes it less reliable than the past reported numbers,” the SBP report states the reason for reporting LSM growth numbers “with strong reservations.”
“It is probable that the LSM growth depicted by the officials statistics understates the true improvement,” the report observes in an explanatory note. It informs that the production data for large scale manufacturing is collected from three sources—industries ministry, provincial bureaus of statistics and Central Board of Revenue.
The CBR used to collect production data of 25 industries and excisable items. As a part of the on-going tax reforms, bulk of these excisable items have now been shifted to sales tax and for the remaining a new proforma (RT-1) has been introduced, which does not provide for the collection of production data. Therefore, the SBP report says, the numbers pertaining to large scale manufacturing are not comparable.
But the SBP report is pretty harsh on data collection of the ministry of industries and provincial bureaus of statistics which finds it “weak and under reported” and hence “do not represent the true developments taking place in Pakistan’s industrial sector.”
“However, the picture is still unclear,” the SBP says in its explanatory note. The “apparent slowdown in LSM, despite a clear improvement in economic indicators can also be caused by non-economic factors, such as political uncertainty.”
The SBP report is particularly surprised on 3.2 per cent growth of textiles which shows an insignificant increase of 0.3 per cent over last fiscal year. Textile industry has attracted substantial investment and continued to import machinery for balancing, modernization and replacement, a 16 per cent rise in textile exports in first quarter of this fiscal year call for a much buoyant performance.
Explaining the reason for this small growth, it said informal and undocumented textile sector might have contributed in the export growth. In case the substantial contribution in textiles export growth has come from informal and undocumented sector, the SBP also explains a part of lower demand for bank credit.
Food, beverages, tobacco, fertilizer production growth has come down by 5.23 per cent, pharmaceuticals by 5.33 per cent, and non-metallic minerals by 7.29 per cent. Automobile sector growth is up by over 24 per cent followed by 19 per cent in engineering, about 16 per cent by tyres and tubes and 2.66 rise in electronics.
The SBP report reveals informal sector in cooking oil and ghee sector has grabbed a substantial market share from the formal sector as indicated by 24 per cent rise in import of edible oil despite rise in prices and a fall of 9.6 per cent in ghee production.