A decade ago, Pakistan’s total goods exports stood at US$20.8 billion, with textiles contributing US$12.4 billion. By FY2026, total exports had increased by US$9.3 billion, of which US$5.5 billion, or nearly 60 percent, came from textiles.
But this was no ordinary decade. Pakistan’s exports and supply chains faced successive disruptions, including the US-China trade war (2018), COVID-19 (2020), the Russia-Ukraine conflict (2022 onwards), devastating floods (2022 and 2025), Pakistan’s balance-of-payments and sovereign debt crisis (2022–2023), India’s military aggression against Pakistan (May 2025), escalating US trade protectionism (2025–2026) and geopolitical instability in the Middle East (2023–2026).
Despite these challenges, the textile industry remained resilient. Yet it is frequently criticised for not delivering greater export growth, when, in reality, other sectors have largely failed to emerge as significant new export engines.
The question, therefore, should not be why textiles have failed Pakistan, but why Pakistan has failed to create the conditions for its most successful export industry to grow faster while also developing other competitive export sectors.
Rising energy tariffs, gas levies, declining domestic cotton production, expensive financing and excessive taxation may sound like familiar concerns, but for manufacturers, they are daily operational realities that undermine competitiveness not just against regional economies with more favourable cost structures, but also against global textile giants such as China and Bangladesh.
Energy competitiveness is not a subsidy:
Industrial electricity in Pakistan costs around 11–12 cents/kWh, compared with 5–10 cents in India, 4–9 cents in China, 4–7 cents in Vietnam and 8–9 cents in Bangladesh. For an energy-intensive industry operating on narrow margins, these differences can determine whether an export order comes to Pakistan or goes elsewhere.
One need only look back a few years to see what happens when this constraint is addressed. When exporters had access to regionally competitive energy tariffs (RCET), textile exports increased from US$12.5 billion in FY2020 to US$19.3 billion in FY2022. Following the withdrawal of RCET and other facilitation measures, exports fell to US$16.5 billion in FY2023. They have since recovered to US$17.9 billion but remain below their potential.
To be clear, exporters are not demanding subsidies. In fact, they are seeking the removal of cross-subsidies that industrial consumers have long paid to finance lower tariffs for protected consumers. Until February 2026, the industry was bearing around Rs131 billion annually in electricity cross-subsidies, having borne as much as Rs240 billion annually until 2024.
This is flagrantly unfair!
The government must recognise that access to competitively priced energy is a fundamental right of the export sector.
The cost of industrial investment:
On top of that, Pakistan’s policy rate stands at 11.5 percent, compared with 5.25 percent in India, 4.5 percent in Vietnam and around 3 percent in China.
Textiles are capital-intensive, requiring substantial investment in machinery, technology and working capital across spinning, weaving, processing and garment manufacturing, alongside continuous adjustments to meet buyer requirements. Consequently, high financing costs constrain growth, with textiles and wearing apparel among Pakistan’s leading borrowers.
While the SBP fears that lower interest rates could stimulate domestic demand, consumption is already supported, in part, by rising remittance inflows. Admittedly, geopolitical tensions involving Iran and the United States, global energy market uncertainty, exchange-rate pressures and inflationary risks may justify relatively high interest rates to preserve macroeconomic stability and protect the rupee. However, extraordinary circumstances must not become a permanent justification for expensive financing.
Once external pressures ease and macroeconomic conditions permit, the government and the SBP must promptly restore affordable financing for productive industries.
While that happens, taxation is already adding to the burden.
Taxation should follow growth, not punish production:
Pakistan’s corporate income tax rate is 29 percent, but that tells only part of the story. The overall burden on formal businesses exceeds 60 percent by some measures when different taxes and levies are combined. Exporters face more than 18 federal and provincial taxes and levies, which can amount to 7–11 percent of turnover against profit margins of only 6–15 percent.
The burden is particularly severe for SMEs, where taxes cascade through successive stages of the textile value chain. Spinners, weavers, processors and garment manufacturers face repeated taxation as products move through production, draining liquidity and weakening competitiveness.
Fundamentally, taxation should be a by-product of economic growth, productivity and profitability, not a punitive instrument that prevents businesses from growing. Had the government prioritised expanding industrial output, creating jobs and improving enterprise profitability, greater economic activity would have generated more sustainable tax revenues.
Through all these measures, the government has effectively positioned itself as the largest stakeholder in Pakistan’s economic activity. But if it claims the largest share of industrial earnings, should it not also have the greatest interest in protecting and expanding the industries that generate them?
Exports create wealth, borrowing creates debt:
Pakistan needs a fundamental change in economic thinking.
For decades, the country’s economic system has relied on external borrowing, but this temporary relief does not create the productive capacity required for long-term economic stability.
Most recently, Pakistan raised US$3 billion through international Eurobonds, including US$1.75 billion at a 7.5 percent coupon and US$1.25 billion at 7.9 percent, with reported market yields reaching as high as 8.25 percent.
This raises an important question: If Pakistan is prepared to borrow billions of dollars internationally at financing costs approaching or exceeding 8 percent, why is it not equally prepared to invest in export incentives that can generate new dollar earnings for the country?
Consider a properly structured Drawback of Local Taxes and Levies (DLTL) scheme, which provides financial rebates to exporters to offset domestic taxes and levies embedded in production costs. An 8 percent DLTL incentive, linked to verified export performance and incremental export growth, could encourage manufacturers to secure additional orders, expand production, create employment and generate much-needed foreign exchange earnings, particularly in an economy with all stages of the textile value chain.
Competitiveness begins at home:
Perhaps more than policymakers have realised, Pakistan’s integrated textile value chain is one of its major competitive advantages. Yet its competitiveness depends on the viability of upstream industries, which are extremely energy-intensive. Imposing excessively high energy tariffs while expecting greater export growth present a fundamental policy paradox.
Correcting this policy direction does not require reinventing the wheel. The industry has proposed electricity at 7 cents/kWh, industrial gas at $7/MMBtu and financing at 7 percent to bring its basic cost structure closer to that of regional competitors. The tax burden must be rationalised, refunds released promptly and the regulatory environment simplified so businesses can retain sufficient earnings to reinvest and grow.
The industry is ready to export more. Is the policy framework ready to back it?
Copyright Business Recorder, 2026
The writer is the Chairman of APTMA