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The Impact of the Macroeconomic Environment on Pakistan’s Manufacturing Sector

Author

Listed:
  • Inayat U. Mangla

    (Professor of Finance and Commercial Law, Haworth College of Business, Western Michigan University, Kalamazoo, MI)

  • Muslehud Din

    (Consultant, Pakistan Institute of Development Economics, Islamabad)

Abstract
This paper analyzes the impact of the macroeconomic environment on Pakistan’s manufacturing sector, emphasizing in particular the role of fiscal and monetary policies in shaping incentives for industrial investment. Arguably, Pakistan’s macroeconomic fundamentals in the last two decades have remained fragile, resulting in severe macroeconomic imbalances that have contributed to macroeconomic instability and hampered private investment in aggregate as well as in the manufacturing sector. Furthermore, macroeconomic stabilization policies have often failed to produce the desired results owing to the lack of coordination between monetary and fiscal policies. Pakistan’s economy has thus lived on borrowed money and time and on rent-seeking behavior. Although some recent macroeconomic indicators have improved slightly, fundamental weaknesses remain. In particular, the recent improvement in the current account deficit was driven largely by the high inflow of remittances, coupled with financial engineering such as loan payments from the International Monetary Fund, “friendly” money, European Union bonds, and Islamic sukuk. It is imperative to think about the consequences of a leveraged reliance on remittances in the aftermath of falling oil prices and global deflation. Prudent macroeconomic management aimed at consolidating public finances and controlling inflationary pressures is essential to boost industrial investment and yield sustainable growth.

Suggested Citation

  • Inayat U. Mangla & Muslehud Din, 2015. "The Impact of the Macroeconomic Environment on Pakistan’s Manufacturing Sector," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 20(Special E), pages 241-260, September.
    • Handle: RePEc:lje:journl:v:20:y:2015:i:sp:p:241-260
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    References listed on IDEAS

    as
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    Cited by:

    1. Naimatullah Shah & Bahadur Ali Soomro, 2021. "Internal green integration and environmental performance: The predictive power of proactive environmental strategy, greening the supplier, and environmental collaboration with the supplier," Business Strategy and the Environment, Wiley Blackwell, vol. 30(2), pages 1333-1344, February.
    2. Saif ur Rahman & Nor’Aznin Abu Bakar, 2019. "Manufacturing sector in Pakistan: A Comprehensive Review for the Future Growth and Development," Pakistan Journal of Humanities and Social Sciences, International Research Alliance for Sustainable Development (iRASD), vol. 7(1), pages :77-91, March.
    3. Musleh Ud Din & Inayat Ullah Mangla & Muhammad Jamil, 2016. "Public Policy, Innovation and Economic Growth: An Economic and Technological Perspective on Pakistan’s Telecom Industry," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 21(Special E), pages 369-391, September.

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    More about this item

    Keywords

    Pakistan; economic activity; fiscal and monetary policies; manufacturing activity;
    All these keywords.

    JEL classification:

    • L69 - Industrial Organization - - Industry Studies: Manufacturing - - - Other
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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