After growing by some 40 percent over pre-Covid levels, Pakistan’s textile industry exports receipts declined by 15 percent during the last calendar year 2023. Although the contraction appears particularly ominous for a country that is perpetually battling with a trade deficit leading to BoPcrises, the decline was not necessarily as alarming once the price effect is considered.
Between 2021 and 2022, the unit prices of Pakistan’s textile and apparel exports rose by 25 – 30 percent on average owing to the post-pandemic global commodity supercycle, egged on by supply chain bottlenecks caused by phased easing of lockdowns across the globe and, a war in the Black Sea. At the time, Pakistan’s traditional exporting industries greatly benefited from these supply chain bottlenecks, which eventually led them to ship historic quantities of textile products to buyers in destination markets, particularly the EU and North America.
But all good things must come to an end. As did the commodity price spiral in the global economy. Between 2022 and 2023, the World Bank’s Commodity Price Index fell by 23 percent, with a 30 percent decline in global energy prices and 27 percent fall in fiber prices (12-month average). As freight costs eased across the shipping and logistics industry, so did the unit prices fetch by exporters, especially within textile. It is no wonder then that Pakistan textile export earnings have contracted by 15 percent.
However, tough times are also an opportunity to weed out those who are competitive. The State Bank’s data on export credit offtake indicates an across-the-board rise in efficiency of credit turnover in nearly all segments of textile and apparel industries, with knitwear and garments recording particularly sizable improvements.
Although the quantum of outstanding credit (in dollar terms) has declined from its peak levels in 2021-22, the value of exports generated has not declined consummately. In fact, on sector wide basis, export credit outstanding declined by a whopping 33 percent, against an only 15 percent decline in export earnings. Put together, deployment of significantly lower resources – in this case, credit – led to a smaller decline in output (export receipts). Meanwhile, exporters are paying a markup rate that is significantly closer to the real price of money – a 17 percent refinance rate against 3 percent in yesteryears. Fewer earnings, yes, but as a result of significantly lower cost to the exchequer. Is that all bad?
Meanwhile, if textile industry is to be believed, the real challenge to export competitiveness and growth stems from the abnormal escalation in energy tariffs, and not necessarily access to affordable credit. The historic decline in raw material (yarn and fabric) output, corroborates that argument to a great degree. If improvement in credit utilization/turnover is any guide, the textile industry has made strides in improving efficiency. Addressing the energy puzzle might finally help deliver the $25 billion promise.
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