KARACHI (December 31 2002) : The withdrawal of excise duty on 25 key industries and a shift in sales tax mode of payment on their sales have resulted in skewed data reporting of large-scale manufacturing output, says the State Bank of Pakistan's quarterly report, issued on Monday.
In the face of the improved economic environment, says SBP, the weak growth recorded by large-scale manufacturing (LSM), and the (apparently complementary) lower net credit from banks, relative to Q1-FYO2, is puzzling and inconsistent with the behaviour of the aligned indicators, such as corporate earnings growth, manufactured exports expansion, domestic sales tax collection and imports of machinery and raw materials.
Thus, it is probable that the LSM growth, depicted by the official statistics, understates the true improvement.
While it is admittedly too early to generate firm expectations for the full year, the Q1-FY03 statistics suggest that the FY03 real GDP growth is likely to be led primarily by an above-target recovery in agriculture that is expected to compensate for a slowdown in LSM growth, enabling the economy to reach the 4.5 percent FY03 annual GDP growth target.
The report says, that 44 of the 100 constituent companies in the benchmark KSE-100 index have reported their full year audited earnings for FY02. On aggregate, the companies reported a 14.6 percent earnings growth.
Excluding Hubco (which booked a one-time accounting gain in FY01, which lowered the FY02 aggregate earnings growth through a high-base effect), the FY02 earnings growth of the remaining 43 companies jumps to 31.6 percent.
While admittedly not necessarily representative of LSM at large, this data does suggest that LSM growth should be stronger.
“One possible explanation,” says SBP, “is that the apparent slowdown is largely visible due to data constraints.”
Data for large-scale manufacturing are collected from three sources, namely the Ministry of Industries, Provincial Bureau of Statistics, and Central Board of Revenues (CBR).
The CBR used to collect production data for 25 industries/excisable items.
As part of the on-going tax reforms, bulk of these excisable items have now been shifted to sales tax, and for the remaining items a new pro forma (RT-1) has been introduced which does not provide for the collection of production data. Therefore, the numbers pertaining to large-scale manufacturing are not comparable.
Besides that, production data collected by other two sources, namely, Ministry of Industries and Provincial Bureau of Statistics, are also weak and under-reported.
Therefore, they do not represent the true developments taking place in Pakistan's industrial sector.
However, this picture is still unclear. The apparent slowdown in LSM, despite a clear improvement in economic indicators, can also be caused by non-economic factors, such as political uncertainty.
Going forward, says the report, LSM growth may be further pressured by the sugar industry (an important contributor to overall LSM growth) where production could be hit by a delayed crushing season.