The textile sector has not been happy lately with the decision of the government to remove the zero-rated status granted to the industry. But the government has lost patience with hoping for textile exports to record any meaningful increase. The recently released textile export numbers by the Pakistan Bureau of Statistics (PBS) will have only reassured the government that exports cannot be increased on the back of government incentives alone.
Far from registering growth, textile exports for the 11MFY19 period have remained stagnant around the $12.3 billion mark and the full year numbers will likely be around the same that they were a year in FY18.
Many believed the currency depreciation would result in an increase in exports and they were not entirely wrong. Looking at the quantity of exports, almost all value added segments registered double digit growth. Readymade garments saw the most increase in quantity in 11MFY19, recording an increase of 33 percent as compared the same period last year.
Knitwear and bed wear also saw their quantity exported go up by 18 percent for the 11MFY19 period. However, the depreciation has meant a reduction in the selling price of textile articles, which explains the lacklustre increase in value of exports despite an increase in quantity. There has also been a reduction in the prices due to the slowdown in global demand on the back of the US-China trade war and intense competition from Bangladesh and Vietnam.
While the zero-rating removal might pose some liquidity concerns for the textile sector, there is no danger of it impacting textile exports. In fact the government is sure to fetch decent revenue on the domestic sales of the sector, which are sizable. (Read: “Textile’s crocodile tears” published on 24 Jun, 2019
But even for the liquidity problem, the FM Hafeez Sheikh has assured exporters that a reliable and prompt refund mechanism is soon to be set up. The aim is to automate refunds with refund payment orders (RPSOs) being sent to the central bank immediately.
The electricity and gas tariffs for the exporters are also likely to be increased with a recent ECC decision to withdraw Rs3 per unit subsidy on electricity tariffs to export industries excluding peak hours.
It is time now for textile exporters to up their game with regards to product diversification, improving productivity as well as coming up with a game plan for improving local cotton output. Policymakers have rightly lost patience with subpar performance despite government incentives and any further request for incentives should not be entertained in the absence of any demonstrated performance.