It’s that time of the month again. Pakistan Bureau of Statistics monthly import report card has been released, and a cursory review shows that the commodity import momentum is slowing down. Is it good news?
Yes, as far as the current account position is concerned. Forecast of shortfall in domestic crop of as much as 5 - 6 million bales meant that the supply gap had to be filled by imports. The incremental imports (over historic average) would have added at least $0.75 billion in import bill, trimming the net exports by textile sector.
Instead, the import momentum is slowing down. Raw cotton imports that were slated to climb to 0.5 million bales per month (of 170 kg) for FY21 have dropped to under 0.3 million bales in November. But is it bad news?
Yes, especially if it is a sign of times to come. In case this becomes a new norm for the remainder 7 months of ongoing fiscal, available stocks of cotton for spinning industry will clock in at just 9 million bales, which is at least a quarter less than average domestic consumption of 12 million bales.
So, why does low consumption necessarily bear ill for the textile sector? One, it comes at a time when sectoral exports have picked up steam, as a result of consistent efforts by MoC and multiple relief measures taken on both fiscal and monetary side. Two, it also comes at a time when exports of traditional goods such as cotton yarn, cloth, and food items are slowing down. Three, it comes at a time when over all trade balance is set to suffer at the hands of ballooning commodity import bill of wheat, sugar, soybean, and pulses among others.
Will lower cotton necessarily translate into lower exports? With some caveat. Last month, federal government announced removal of tariffs on import of cotton yarn, at the insistence of readymade garment exporters who decried rising prices of domestically produced cotton yarn amid shortage of raw material.
All else held equal, beginning 2HFY21, textile exports can sustain their momentum, provided that imported yarn is only used fro exportable products. But given that more than half of yarn supply is used for production of local made-up garments demand, imported yarn may not after all translate into more exports.
Which only leaves one more possibility: that the spike in demand from international buyers was temporary and is now going to average out going forward. But more on that later.