The alarmingly high current account deficit has resulted in the government finally taking measures to arrest falling exports especially in the textile sector. Even though recovery has been slower than expected due to patchy implementation of the incentive package announced by the government last year, the recent numbers released by the Pakistan Bureau of Statistics (PBS) show an uptick in textile exports.
For 1HFY18 textile exports increased by 8 percent on a year-on-year basis while during Dec-17, they registered growth of 10.2 percent. As has been the trend for quite some time now, the growth in value is led by value-added segments. Readymade garments which made the highest contribution of almost 21 percent in Dec-17 exports, clocked in 9 percent and 14 percent growth in value as compared to Dec-16 and 1HFY17.
The case is similar for other valued added segments including knitwear and bedwear which recorded 13 and 6 percent growth as compared to corresponding period in the previous year. There are various reasons for the uptick in this year's textile exports so far which include higher demand from the EU and the GSP plus scheme. Then there is the PM incentive package for textile exports which seems to be bearing fruit albeit after a lag due to its initially weak implementation.
Textile exporters continue to complain about an increasing value of pending sales tax refunds which has resulted in creating a liquidity crunch for them. There is also a need to reduce the cost of doing business for textile players and the government might decrease utility tariffs for the sector going forward.
However, the biggest boon for the sector so far this year undoubtedly remains the 5 percent depreciation of the rupee in December. According to BR Research channel checks, the number of orders have increased after the move, and future numbers will reflect growth particularly in value-added segments such as readymade garments. At the same time, increasing global competitiveness has led to better quality products which utilise higher quality raw materials. Currently, the value added segments face hurdles in import of these raw materials which include synthetic fibres. Interestingly, consumer preferences have shifted towards man-made fibres around the globe and Pakistan's reliance on pre-dominantly cotton based exports needs to be reassessed at both policymaking and firm level.