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It seems beyond dispute that Pakistan’s textile industry must now bid farewell to the export bonanza of the last two financial years. After breaking the $13 billion barrier for the first time in FY21, textile exports rose to $18.5 billion by FY22, but are now set to recede back below $17.5 billion during current year, with only downside risk of slipping further.

It is said that tragedy strikes in threes. And that’s exactly what seems to have taken place to textile exports. First, the staggered recovery of global economy post Covid drove cotton prices in the international market to 11-year peak, marking the first strike on exporter profitability. Then came the monsoon floods of 2022, which caused national cotton output to drop 55 percent below target. Later came the dollar liquidity crisis, making imports prohibitively inaccessible than expensive. Now, finally, world cotton prices have drastically declined, falling 40 percent compared to peak levels reached just nine months back. That too, will not bode well for Pakistan’s exporters.

Why? If cotton consumption over the last decade is taken as proxy, consensus estimates of Pakistan Central Cotton Committee, Pakistan Cotton Ginners Association, APTMA, and USDA indicate that the milling segment processes anywhere between 12 – 14 million bales (of 170kg) per annum. Inclusive of carryover and imports, cotton supply in the local market during the ongoing year may hardly reach 12 million bales, if not lower. Meanwhile, although cotton prices in many competing exporting markets have declined in local currency terms during recent months, up to 25 percent currency depreciation in Pakistan since Sep-22 has ensured that prices remain elevated in rupee terms.

And this confluence of misery has struck at a time when the central bank has begun to unwind its concessionary financing portfolio to the exporting segment, resulting in working capital loans outstanding to the industry declining by a third in dollar terms. As screws have also been tightened on the monetary policy, cost of working capital borrowing in rupee terms for the exporting industry has escalated from an average of 5 percent a year ago, to close to 18 percent currently. Meanwhile, the federal government has also rolled back subsidies on energy tariffs which have hit upstream segments such as spinning and weaving very hard.

The industry might be able to keep its head above water for a little while longer thanks to ultra cheap long term financing obtained during the pandemic, which may keep cashflows positive in the immediate term. However for far too long, Pakistan’s textile industry has survived on a combination of state largesse in the mode of concessionary financing, cheap energy, and cheap access to raw material, without investing itself in upstream value chain such as improving the productivity of cotton crop through better seeds, mechanization; ensured profitability for farmers; or bringing efficiency to ginning operations. Now, as the state has finally run out of money to throw around, the chickens will finally be coming home to roost. Without access to competitively priced capital, energy, labor, or even raw material, it might finally be the right time to ask: does Pakistan’s textile industry enjoy any comparative advantage in the export market?

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Shahbaz Ali Mar 13, 2023 03:00pm
PKR vs USD devaluation of about 260% in 3 years. About 100% in a year. And still exporters complain? All their prices are in USD which means their revenue in PKR has increased by 100% in a year on same sales. Only real beneficiaries of current crisis are exporters as they earn in US Dan pay in PKR
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Abdulrehman Haroon Mar 13, 2023 03:56pm
In my opinion, textile exporters are one of the biggest blackmailers around. These industries earn USD which has appreciated exponentially compared to the Rupee yet they still want more subsidies. The only thing textile exporters are concerned about is their own growth, while they continue to manipulate and exploit local suppliers by delaying payments and issuing bogus debit notes. It is high time these large scale blackmailers were given a reality check.
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Az_Iz Mar 13, 2023 05:15pm
Hard to understand the analysis. If cotton prices are elevated in local market due to currency depreciation, then exports earnings will also be higher, as the payments and pricing is in dollars. If domestic cotton production has dropped, then cotton can be imported, just like many other textile exporting countries, who barely produce any cotton. The textile industry should stop looking for dole outs.
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Mushtaque Ahmed Mar 13, 2023 11:20pm
Time to get out producing low value textiles for the domestic and world markets. No more room for state largesse, textile sector now has to stand on its own feet.
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raheel rao Mar 14, 2023 08:53am
Textile sector is highly subsidized and due to inefficiencies could not innovate and build brands. Even GSP+status remained somewhat useless to give a export impetus as the big producers in the country focus on wealth accumulation, realstates, etc. with not a single penny spent on R&D. Unfortunately, neither governments nor the industrialist are interested in Pakistan, they are only motivated by personal progress.
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এসকে Mar 14, 2023 03:46pm
We Love BANGLADESH
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Ahmad Mar 16, 2023 09:39pm
Technically pakistan produces short length fibre which is only good for coarser counts upto 30s.That is why pakistan is good in towels,denims and ducks,twill and drill fabrics. Long fibre is required cannot be cultivated because of weather. That is why it has to be imported. Textile and workers remittances are the major source of foreign exchange earning. High value pr
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