Islamabad: In a development that underscores the challenges facing Pakistan’s industrial sector, the Federal Bureau of Statistics (PBS) has reported that the production of large-scale manufacturing industries (LSMI) decreased by 1.21 percent during the first eleven months—July 2024 to May 2025—of the fiscal year 2024–25.
While this year-to-date decline reflects an overall contraction in key industrial segments, the report also offered a glimmer of hope, noting that production in May 2025 increased by 7.39 percent compared to April 2025. Additionally, a year-on-year increase of 2.29 percent was observed when comparing May 2025 to the same month in 2024.
Large-Scale Manufacturing: A Barometer of Economic Health
The LSMI index is a crucial component of Pakistan’s economic performance. It not only reflects industrial output but also influences GDP growth, employment trends, investment confidence, and export potential. When LSMI contracts, it can signal economic distress and the need for policy adjustments.
The 1.21 percent decline over eleven months is significant as it represents reduced activity across several core sectors, many of which are linked to export value chains, construction, and consumer demand.
Breakdown of Sector-Wise Performance
The detailed report issued by PBS reveals varying degrees of decline across several industries. Some sectors have seen drastic reductions in production, while others are experiencing milder contractions.
1. Furniture Sector: A Sharp Decline of 58.09%
The most staggering drop has been witnessed in the furniture manufacturing sector, where production declined by 58.09 percent from July 2024 to May 2025. This may be attributed to:
- Reduced construction activity and housing starts
- Declining consumer spending on durable goods
- Increased cost of raw materials like wood and adhesives
- Lack of access to financing for small manufacturers
The furniture sector, though small in scale compared to others, is labor-intensive and contributes to employment generation in rural and semi-urban areas.
2. Machinery and Equipment: Down by 35.41%
Another critical sector facing challenges is the machinery and equipment manufacturing industry, which declined by 35.41 percent over the same period. The sector’s performance is a key indicator of investment trends, as demand for machinery is closely linked to business expansion and infrastructure development.
A possible explanation for this steep decline includes:
- Shrinking public development programs
- Delayed industrial expansion projects
- High import costs of components
- Persistent energy shortages
This downward trend in machinery production also reflects reduced capital formation, a worrying sign for long-term economic development.
3. Fabricated Metal Products: Production Fell by 15.30%
The fabricated metal sector, which includes products such as structural components, containers, and precision tools, also recorded a 15.30 percent decrease. This drop can be connected to the slump in construction and automotive sectors, where metal products serve as key inputs.
Other Notable Declines in Key Industries
Sugar Industry: -14.30%
The sugar sector, one of the most politically and economically sensitive industries in Pakistan, saw a 14.30 percent decline in production. This could be due to:
- Lower sugarcane crop yields
- Delayed crushing seasons
- Regulatory uncertainty and pricing disputes
- Export restrictions or shifting government policies
The sugar industry is deeply linked with agricultural policy, subsidies, and farmer incomes, making its decline impactful beyond just industrial output.
Electrical Equipment: -12.74%
The electrical equipment sector, which includes products such as cables, circuit breakers, and home appliances, declined by 12.74 percent. This drop is particularly alarming given the rising domestic demand for energy infrastructure upgrades and the proliferation of electronic devices.
Reasons for the decline may include:
- Import restrictions on raw materials
- High electricity costs reducing competitiveness
- Reduced consumer demand amid inflation
Chemical Sector: -4.06%
The chemical sector, covering a wide range of industrial chemicals, fertilizers, paints, and pharmaceuticals, showed a 4.06 percent decline in production. A slowdown in this sector has implications across the industrial spectrum, as chemicals are used in textiles, construction, food processing, and agriculture.
Food Sector: -2.32%
Production in the food sector declined by 2.32 percent, likely due to changes in domestic consumption patterns, export market challenges, and disruptions in supply chains. The food sector is closely tied to agriculture, and any fluctuation in food production also affects price stability and inflation.
May 2025 Brings a Ray of Hope: Monthly Growth Improves
Despite the worrying figures from the overall fiscal year, the month of May 2025 brought some positive signs, with a 7.39 percent increase in production over April 2025. Moreover, when compared with May 2024, production increased by 2.29 percent on a year-on-year basis.
These improvements may reflect a seasonal uptick or the impact of government economic measures, including:
- Lower interest rates encouraging borrowing
- Increased domestic demand post-Ramadan and Eid
- Stabilizing energy supply in some regions
- Government-backed industrial stimulus packages
Causes Behind the Decline in Industrial Production
1. Economic Uncertainty and Inflation
Pakistan’s economy has been plagued by high inflation, reducing consumer purchasing power. In turn, this has lowered demand for non-essential goods, particularly in sectors like furniture and electrical appliances.
2. Energy Crisis and Load Shedding
Frequent power outages, rising energy tariffs, and fuel shortages have crippled manufacturing capabilities, especially in energy-intensive industries.
3. Exchange Rate Instability
The depreciation of the Pakistani Rupee against the U.S. dollar has made imported raw materials costlier, affecting production capacity and price competitiveness in both domestic and international markets.
4. Limited Access to Credit
Rising interest rates and tighter monetary policies have made financing more expensive, discouraging business expansion and capital investment.
Policy Measures to Revive Industrial Growth
To reverse the decline in large-scale manufacturing, the government and relevant stakeholders may consider:
- Subsidies and relief packages for struggling sectors
- Tax incentives for local production and exports
- Improved energy infrastructure to support industrial operations
- Streamlined import processes for critical raw materials
- Skill development programs to modernize traditional industries
Conclusion: Navigating a Difficult Industrial Landscape
The 1.21 percent decrease in major industrial production over eleven months of the fiscal year 2024–25 highlights the vulnerability of Pakistan’s manufacturing sector to both domestic challenges and global headwinds. While the May 2025 figures offer hope, sustained recovery will require targeted government intervention, macroeconomic stability, and structural reforms.
As policymakers prepare the next fiscal budget and industrial policy framework, addressing the constraints on large-scale manufacturing will be essential for reviving economic growth, creating jobs, and boosting exports.
