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During the last fiscal year (2022-23), Pakistan’s spinning industry raked in a record cotton import bill of $2.4 billion, despite the restrictions imposed on import by the central bank due to the foreign exchange liquidity crisis. In fact, over the past three fiscal years, national cotton import bill averaged at $2.25 billion per year, making it the fifth largest line item on Pakistan’s goods import bill, and the largest outside fossil fuels (crude oil, gas, coal) and palm oil. During the ongoing financial year (2023-24), it now appears likely that cotton imports might not even make it to top-10 of country’s import bill!

Before fireworks are lit to celebrate what obviously looks like an achievement, let’s pause to review how the industry may have gotten here. It has now been well-established that the country witnessed a turnaround in domestic cotton production during the latest kharif season, after the devastating monsoon floods of last year. However, there is a risk of over-selling this ‘turnaround’ story. As BR Research has insisted many times, the expected cotton output for the current marketing year is a million bales lower than the average production during FY18 – FY22 (excluding flood year FY23) and is exactly at par with the reported output for the year before (FY22). The effects of the ‘turnaround’ appeared overexaggerated during the early months of cotton harvest, a phenomenon well-documented in this space, however unacknowledged by the broader industry.

But if the expected cotton production during the ongoing year is at par with financial year 2021-22, it is only intuitive to conclude that demand for imported cotton may clock in the same range. That year, Pakistan imported 4.5 million bales (of 170kg) of cotton, adding up to total domestic supply (domestic output + imports) of 13 million bales. Per BR Research’s estimates, demand for imports in the ongoing year won’t look anything like that.

Why? First, the financial year 2021-22 was still very much a growth year for both the country and the industry, with the country registering GDP growth rate of 6.10 percent, highest since 2004-05. For much of that year, the textile industry enjoyed concessionary financing schemes, subsidized energy tariffs, and average borrowing rate that was still very much within single-digit territory. The same year, global cotton prices climbed up to an 11-year peak, averaging around 130 cents per pound, 60 percent higher than annual average for the year before. Together, the never-before-seen convergence of so many enabling forces drove Pakistan’s annual textile exports to $18.5 billion, the highest in country’s history.

The financial year 2023-24 looks nothing like 2021-22. Despite the nascent indicators of macroeconomic recovery, averaging borrowing cost for the full year shall continue to remain well above 15 percent; concessionary financing schemes have been terminated; while the spigot of subsidized energy tariffs has for long been screwed off tightly, possibly permanently. Global cotton prices have collapsed and are expected to average between 80 – 90 cents for the full year, while fears of recession in the exporting destinations mean downstream order placement and buying may stay cautious for the rest of the fiscal year.

But most importantly, the appetite for imported cotton has diminished in the local market. Although the industry insists that imported cotton is primarily needed due to the frequent shortfalls in domestic production, that’s only partly true. In recent years, the rise in demand for imported cotton was (by a fair degree) was driven by the growth in domestic fashion and retail, especially the market for quality lawn and fabrics, which requires high count and longer staple cotton, not produced locally. The back-breaking inflation of the last two years has pummeled domestic purchasing power in an unprecedented manner, meaning discretionary spending on fashion and retail no longer stands a chance to match levels reached during years of high economic growth.

Coupled with global cotton prices receding to weakest levels in three years – (BR Research’s full year forecast of average 90 cents per lb), it appears likely that domestic cotton import bill may fall back under one billion dollars, lowest in four years.

That’s great news for Pakistan’s great trade deficit; but is it truly so, if export earnings remain embattled?


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