Textile exports for April clocked in at $1.24 billion, a staggering $500 million less than the previous year’s exports for April and a colossal $1bn per month short of the capability due to enhanced capacity.

It is disheartening to see that over the same period, competing countries such as Bangladesh, Sri Lanka and Vietnam posted impressive growth ranging from 10-30 per cent in textile exports over the last year while we struggled to keep up with our previous years’ exports.

Exogenous factors, ie demand and external market forces, cannot be blamed for our downfall as the decline is entirely the consequence of our shortsighted decisions and failure to follow through on proven policies such as providing a level playing field on energy tariffs.

Click to see more

The impressive surge in Pakistan’s textile exports, a remarkable 56pc, to $19.5bn in 2022 from $12.5 billion in 2020 is largely attributed to the strong policy support through regionally competitive energy tariffs (RCET).

The energy subsidy to the textile sector under RCET was 2.67pc whereas the interest rate on foreign loans is at 7-8pc, making it more expensive of the two options

The industry’s enhanced competitiveness empowered it to invest a further $5bn in expansion and new projects, effectively boosting export capacity by $5-6bn billion per annum. These milestones placed Pakistan firmly on track to achieving its target of $25bn in textile exports in 2023.

However, the import restrictions and unfortunate withdrawal of RCET have left the industry reeling. The momentum is lost and investments are at risk of going to waste. The ramifications of such a decision are far-reaching and disastrous, with severe economic costs, loss of confidence, and social unrest stemming from the surge in unemployment.

The government rescinded its commitment to provide competitive energy tariffs to our country’s export sectors, which were to extricate us from the grip of twin deficits through export-driven expansion. This decision is distressing as it may suggest that the government has relinquished their resolve to pursue the sole viable strategy for managing our Balance of Payment.

This has sent shockwaves throughout the economy, leaving essential export sectors precariously vulnerable and driving the country towards rapid deindustrialisation.

The initial tariff rates of 7 cents/kWh for electricity and $6 per million British thermal unit (MMBtu) for gas were highly competitive and proved to be instrumental in driving the country’s export-led growth. As the tariff climbed to Rs19.99 per kWh and $9 per MMBtu for electricity and RLNG/gas, respectively, it still remained marginally competitive.

However, the sudden complete withdrawal of RCET has dealt a fatal blow to Pakistan’s economy, leaving its export industry in shambles with the recent hike in electricity and RLNG/gas prices.

This has made the industry uncompetitive in both local and international markets. Punjab industry, in particular, with energy costs four times that of Sindh, seems to have been sacrificed at the altar of short-sightedness and expediency. As a result, the available orders are now being shifted to cheaper alternatives, both domestically and internationally.

The withdrawal of this tariff will undoubtedly lead to further economic deterioration, including unemployment, lower exports, and bankruptcy.

Closure or partial operation of the installed capacity has already resulted in significant unemployment of more than 10m.

Click to see more

The current situation implies that replacing exports with mere remittances and loans is impossible, which could permanently damage the Pakistani economy.

The government must realise that growth-led export policies such as RCET can lead to increased exports and higher revenues for the industry against foreign loans with high-interest rates of 7-8pc. Whereas the total cost of RCET, if the differential is treated as the subsidy/cost, is 2.67pc, making it the most efficient and sustainable way of funding foreign exchange requirements.

The issue of Pakistan’s economy teetering on the brink of a severe financial crisis is not new. The question at hand is how to execute policies effectively to ameliorate long-standing disadvantages and secure the future of the nation.

The reintroduction of RCET will undoubtedly be a game-changer, providing an immediate boost to the struggling economy by lowering energy tariffs and keeping foreign investors engaged.

However, a sustainable long-term solution is also required to secure the country’s future. Structural issues and inefficiencies within Pakistan’s energy sector must be addressed for a sustainable solution. These issues and inefficiencies greatly impact affordability, and it is crucial that the state relinquish control of business operations to private investors and innovators.

The competitive trading bilateral contract market is a step in the right direction, but it is hampered by bureaucratic interference and unnecessary restrictions. Government has to loosen its grip on business. What the nation needs are business-to-business deals that are free from government intervention and meddling.

This will aid in restoring competitiveness, benefiting both the industry and the state in breaking the vicious cycle of circular debt, which currently stands at Rs4 trillion for electricity, as per the Power Division’s statement and Rs2tr for gas/RLNG.

The crux of the matter does not solely lie in policy formulation but rather in the effective execution of policies. The Textile Policy 2025 serves as an example of this, as it was developed after rigorous deliberation and consultations but is yet to be implemented.

The non-implementation of the Textile Policy 2025 implies that the business environment in Pakistan is not conducive to the growth of existing and new investors. Emphasising the implementation of policies can have a tangible impact on driving sustainable development and spurring economic growth, leading to significant improvements in Pakistan’s textile sector and exports within the next four years.

It is an undeniable fact that Pakistan has consistently fallen behind when competing countries have experienced economic take-offs. The reasons for this disparity are numerous, including a lack of long-term vision and implementation of policies, compounded by erratic energy prices and availability.

Additionally, policies have been abruptly withdrawn time and again, causing the industry to veer off its path of export-led growth. To achieve sustained progress, it is imperative that Pakistan focuses on augmenting export earnings by implementing long-term policies while simultaneously reducing state intervention in the business arena.

We hope that the decision-makers take heed and reverse the decline through decisive measures in support of creating a focused export culture in the country.

The writer is the patron-in-chief of All Pakistan Textile Mills Association

Published in Dawn, The Business and Finance Weekly, May 21st, 2023