The total value of textile exports in April was $1.24 billion, which is a startling $500 million less than the same month last year’s exports and a monstrous $1 billion less than what is possible given increased capacity.
It is depressing to note that although we battled to maintain our export levels over the past year, rival nations like Bangladesh, Sri Lanka, and Vietnam reported significant growth ranging from 10 to 30% in textile exports.
Demand and outside market forces
Demand and outside market forces cannot held responsible for our collapse because they are completely a result of our ill-consider choices and refusal to implement tried-and-true policies like ensuring an even playing field for energy tariffs.
A substantial part of the astonishing 56 percent increase in Pakistan’s textile exports from $12.5 billion in 2020 to $19.5 billion in 2022 can be credited to the strong policy backing provided by regionally competitive energy rates (RCET).
The costliest of the two choices,
the energy subsidy provided to the
textile industry under RCET was 2.67
percent, while the interest rate on
foreign loans is 7-8 percent.
Due to the industry’s increased competitiveness, it was able to invest an additional $5 billion in expansion and new projects, which increased its annual export capacity by $5 to $6 billion. These achievements put Pakistan squarely on track to meet its goal of $25 billion in textile exports in 2023.
However, the industry is in a state of disarray as a result of the import restrictions and regrettable RCET pullout. Investments run the danger of being wasted as the momentum wanes. Such a choice would have far-reaching and terrible consequences, including high economic expenses, a loss of confidence, and social instability brought on by the sharp increase in unemployment.
The administration backtracked on its promise to offer competitive energy rates to our nation’s export industries, which were supposed to help us escape the twin deficits through export-driven growth. This choice is disturbing because it might imply that the administration has given up on the one practical method for managing our balance of payments.
This has had a profound impact on the economy, leaving crucial export industries highly vulnerable and pushing the nation towards a rapid deindustrialization.
The country’s original tariffs, which were set at 7 cents per kWh for electricity and $6 per million British thermal unit (MMBtu) for gas, were extremely competitive and were a major factor in fostering the export-led expansion of the economy. Even though the price of energy and RLNG/gas increased to Rs19.99 per kWh and $9 per MMBtu, respectively, it was still only slightly competitive.
With the recent increase in energy and RLNG/gas costs, the abrupt complete removal of RCET has dealt a deadly blow to Pakistan’s economy, wrecking its export industry.
Due to this, the industry is now uncompetitive in both domestic and foreign markets. Particularly in Punjab, where energy costs are four times higher than in Sindh, industry appears to have been sacrificed on the altar of expediency and short-sightedness. As a result, both domestically and globally, the available orders are currently being switched to less expensive alternatives.
Removal of tax
Without a doubt, the removal of this tax will cause the economy to worsen much more, leading to increased unemployment, decreased exports, and insolvency.
Significant unemployment of more than 10 million people has already been cause by the closure or partial functioning of the install capacity.
The current situation suggests that it is impossible to replace exports with just remittances and loans, which could harm Pakistan’s economy in the long run.
The government must understand that growth-driven export policies like RCET can boost exports and improve industry income in exchange for high-interest foreign loans with rates of 7-8%. While RCET is the most effective and long-term method of meeting foreign exchange needs, its overall cost, if the differential is view as the subsidy or cost, is 2.67 percent.
It is not a new problem that Pakistan’s economy is on the verge of a serious financial collapse. The issue at hand is how to implement policies successfully in order to address enduring disadvantages and safeguard the future of the country.
Unquestionably, the return of RCET will be a game-changer, giving the faltering economy an immediate boost by decreasing energy tariffs and keeping international investors interested.
A viable long-term answer
To ensure the future of the nation, nevertheless, a viable long-term answer is also necessary. For a long-term solution, structural problems and inefficiencies in Pakistan’s energy sector must be address. The state must hand over management of business operations to investors and innovators in the private sector because these problems and inefficiencies have a significant impact on affordability.
Although the market for bilateral contracts for competitive commerce is a positive development, it is constrain by excessive governmental intervention. The government needs to relax its control over industry. The country needs business-to-business transactions free from interference from the government.
In turn, this will help the industry and the state break the cycle of circular debt, which, according to the Power Division’s statement, presently totals Rs4 trillion for electricity and Rs2 trillion for gas/RLNG.
The real issue lies not just in creating policies, but also in carrying them out well.
The Textile Policy 2025 is not being implement, which suggests that Pakistan’s business climate is not favourable for the expansion of both existing and new investors. Stressing the importance of policy implementation can significantly boost Pakistan’s textile sector and exports within the next four years by promoting sustainable development and stimulating economic growth.
Undisputedly, Pakistan has constantly lagged behind when other nations have seen their economies take off. Numerous factors contribute to this discrepancy, including a lack of long-term planning and policy implementation, which are exacerbat by volatile energy pricing and supply.
Furthermore, numerous sudden policy changes have caused the industry to deviate from its course of export-led expansion. Pakistan must prioritise increasing export revenues by enacting long-term policies while concurrently limiting state interference in the corporate world in order to make steady growth.
We hope that those in charge pay attention and take prompt action to stop the decrease in order to help the nation develop a focused export culture.