The State Bank of Pakistan (SBP) has released its first quarterly report on the state of Pakistan's economy for FY19-20, including the performance of the domestic cement sector.

According to the report, Pakistan's macroeconomic stabilisation process picked up momentum with the initiation of the IMF's Extended Fund Facility. The SBP continued to keep the monetary policy consistent with the medium-term inflation target, while consolidation efforts were visible on the fiscal front. Furthermore, a market-based exchange rate system was implemented, to which the interbank foreign exchange market adjusted relatively well. Notably, the government avoided deficit monetisation, including rollover of SBP debt and actively pursued documentation efforts.

The large-scale manufacturing sector witnessed a decline of 5.9 per cent in 1QFY19-20 YoY.  Achieving the real GDP growth target of four per cent appears unlikely.

Cement industry
The cement industry’s first-quarter output declined by 1.5 per cent YoY compared to marginal growth last year, as captured by LSM data. This outcome results mainly from subdued domestic demand although there are some signs of improvement since September FY19-20. On the other hand, exports of clinker helped offset a substantial portion of losses but were not enough to turn the overall output growth to positive in this quarter.

According to the All Pakistan Cement Manufacturers Association (APCMA), cement exports rose by 17.6 per cent in  1QFY20 compared to 30.8 per cent growth last year.

As exports to India declined, exports of the finished commodity to Afghanistan and clinker to mainly African countries rose sharply, to the benefit of local producers. In particular, exports of clinker, which grew 121.9 per cent over last year, provided a much-needed boost to a sector that has undertaken extensive capacity enhancement in the last few years and added over 20 per cent to the overall capacity in just the last two years.

Meanwhile, domestic cement sales remained dull as public and private spending on infrastructure and housing remained subdued. The high cost of construction deterred real estate developers. In addition, large-scale developers, who rely on bank borrowing to fund their operations, held back their investment owing to the increase in financing costs.