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Textile exports likely to squeeze by $1bn in July amid gas closure, Eid holidays

July 01, 2022 (MLN): Despite being in the sweet spot on the notable depreciation of the Pakistani rupee (PKR) against the US dollar, the textile exports will likely witness a loss of $1 billion in July 2022 due to the gas closure and Eid holidays.

According to the news report, the sector will not be provided gas from July 1, 2022, to July 8, 2022. Meanwhile, textile units will observe another shut down on the back of the upcoming Eid holidays.

As a result, the sector which contributes more than 60% to the total exports of Pakistan will face daunting challenges to complete the export orders on time.

The consequences of the decline in exports are not limited to only the company’s profitability and competitiveness but it will force the cash-strapped government to borrow more dollars to fund the current account deficit.

After touching a record high level in April 2022, Pakistan’s textile exports witnessed a fall of 5.6% in the month of May 2022 to $1.64bn owing to insufficient availability of LNG/Gas to the sector.

In addition to it, the government has not yet settled the rate of the Regionally Competitive Energy Tariffs (RCETs) for the fiscal year 2023 which also requires to be settled at the earliest to maintain the regional competitiveness of the sector in the international market.

Industry players are of the view that the unprecedented situation demands the government’s immediate attention otherwise the sector will have to suffer unbearable losses.

Muhammad Jawed Bilwani, Chairman of Pakistan Apparel Forum brought this matter to the attention of Prime Minister Shehbaz Sharif and said, “In contradiction to the government's Textile & Apparel Policy 2020-2025, the economic team has not considered for continuation RCETs despite repeated requests and appeals by the Value-Added Textile Export Industry of Pakistan during submission of their pre-budget and post-budget proposals for FY2023.”

He added that it is highly important to ensure a level playing field for Pakistani textile exporters to enable them to compete regionally and globally by reducing and bringing at par the cost of manufacturing with the regional competing countries.

In this connection, the continuation of competitive energy tariffs is highly inevitable and crucial for the sustainability and enhancement of exports.

Further, the utility tariff (power and water), as well as the exchange rates of US Dollar and Euros, should also be fixed for exporters with regards to import of export industries to manufacture goods meant for export.

At present, exporters are unable to negotiate new export orders due to extreme uncertainty with regard to the cost of manufacturing to produce export goods.

Earlier on Tuesday, Chairman of All Pakistan Textile Mills Association (APTMA) Abdul Rahim Nasir requested Prime Minister Shehbaz Sharif to announce competitive prices of electricity and gas for the textile sector before June 30, 2022, at the earliest as the current tariffs lapsed on the said date.

Such type of supply-side issues are the major bottlenecks for textile exporters in a way to obtain notable gains from depreciating PKR as exporters are unable to expand their capacity to produce export surplus and tap new markets, Abdul Ghani Mianoor, Research Analyst at Intermarket Securities told Mettis Global.

“What Pakistan can export; it is already exporting.  If prices improve, then exporters will make more money, but will not expand much. This reasoning is hard to accept, given that just a year ago we estimated the country’s export potential at $88bn—far more than it is currently exporting. The “missing” export surplus is close to $60bn, Gonzalo Varela, Economist at World Bank highlighted.  

The “no exportable surplus” story is a supply constraints argument. If the country is exporting recycled cotton towels and the rupee depreciated, it would now get more rupees per towel. But scaling up takes financing for that extra machine to recycle the yarn, and the plant expansion, he added.

In order to prevent this sector from downfall, the government needs to devise business-friendly strategies in a way that can unleash the existing potential. More specifically, the supply-side issues such as the resolve of energy issues will pave the way to achieve the government’s target of $35bn exports in FY23.

Copyright Mettis Link News

Posted on: 2022-07-01T20:49:54+05:00

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