Dec 21 - 27, 2009

Pakistan's textile industry, which accounts for two-thirds of the country's exports, is currently struggling to revive growth. The country's overseas sales of textiles are threatened by growing terror attacks, power outages and poor market access. A number of textile units in the country have declared losses or 'nil' income, as they submitted income tax returns for tax year 2008. The key reasons of declaring losses were the global and domestic recession, energy crisis and devaluation of rupee that had seriously impacted the textile productivity last year.

Another factor is the China's dominance in export business, which has also hindered the country's textile exports to Australia. China is blocking the growth of Pakistan's top exporting products to Australia, according to a study recently conducted by the Trade Development Authority of Pakistan (TDAP). China is the major competent in the products of bed wear and towels and has captured around two-third of the Australian market.

During last fiscal year 2008-09, the country's exports to Australia were on the decline, according to a recent study conducted by TDAP. The TDAP's study reveals that during the last five years the country's export to Australia was stagnant at around $120 million. However, last year there was an increase of 13 percent in exports to the Australian market. The strong presence of China is blocking the growth of Pakistani textile exports to Australia. In case of towel, Bangladesh is enjoying a duty free market access, whereas Pakistan, India and China are facing 17.5 percent import duty.

The government has imposed ceiling on export of coarse yarn (below 32 single counts. A floor price has been fixed with regard to export of fine count yarn (above 32 single counts) and it will be subject to random checking and verification at export stage. The measure has been taken in order to ensure that the course yarn (below 32 single) is not shipped under the garb of fine count yarn. The local value- added textile industry mostly consume yarn below 32 single counts and due to raw cotton shortage in US and China there is a surge in demand for this category of yarn in the world market.

In view the growing size of the sector with huge investment, the textile industry has remained the core source of foreign exchange earning for the south Asian country. Analysts believe that the tax revenue collection from the textile industry is negligible mainly because of huge refund payment.

Two basic problems are attached with the low contribution by textile sector. Firstly, the concept of effective audit is non-existent in the country and hence, the taxpayer understates his income. Secondly, there is a problem in income tax reporting system, including the Monthly Performance Reports (MPRs) prepared by the income tax offices containing the macro picture of withholding taxes, collection and voluntary payment. Sector-wise collection is not regularly generated, and reported.

"Textile buyers like to come, see and feel the product," Bloomberg recently reported Umer Mansha, chief executive officer of Nishat Mills Ltd., the country's biggest exporter, as saying. "The situation is such that buyers are simply not willing to come here. It's very hard for us to get new clients."

Analysts fear that Pakistani exporters may fail in fulfilling the European and American apparel export orders worth $1billion for Christmas due to high price of cotton and yarn in the local market.

The cotton price soared to a new seasonal high of Rs 4,608 per 40 kilograms as against Rs 3,215 per 40 kg last year, reported Daily Times, citing the local market sources. An all-time increase in the prices of lint from a low of Rs 3,300 per 40 kg early in the season to the current high of Rs 4,600, showing a rise of Rs 1,300 per 40 kg, signals bad days for the textile industry, notably the export front. The current price flare-up could be contained at this stage and prices could rise higher to the level of New York cotton in the coming months.

The country produced 12.1 million bales cotton in the current fiscal year 2009-10 as against its target of 13.36 million bales, showing a shortfall of 1.26 million bales or 9.43 percent against the target. The country's domestic requirement for cotton is estimated at 14 to 15 million bales against the current production of12.1 million bales.

The cost of doing business is constantly going up not giving a sigh of relief to industrialists. The exports of apparel from Pakistan in the last ten years had increased from $1.5 billion to only $3.5 billion, whereas in Bangladesh the exports increased from $1.5 billion to $12.5 billion, which showed that Pakistan's exports were much below as compared to other competitors in the region.

The country exports textile products worth $3 billion a year to the US where the total textile market is worth as much as $110 billion. The country's share in the American market could grow to $10 billion in a short time if Washington agrees to allow it duty-free market access. Local exporters say increase in their share of the American as well as the European markets is hampered by duty-free access given to textile exports from Bangladesh and Sri Lanka.

The country's trade deficit widened to $1.37 billion in October compared with $1.98 billion in the same month last year, according to the Federal Bureau of Statistics (FBS). Exports stood at $1.59 billion in October against $1.48 billion in the same month last year. Imports were worth $2.97 billion in October compared with $3.46 billion in the same month last year. The country recorded a provisional current account deficit of $531 million in October compared with a provisional current account surplus of $174 million in September. The analysts argue that the rise in the deficit from September to October is mainly due to a higher import bill stemming from rising international oil prices.

Last month, the country's central bank lowered its benchmark interest rate by 50 basis points to 12.5 percent from 13 percent for a third time this year to spur economic growth. Local analysts believe that cutting interest rates to single digit level will produce multiple benefits for the economy, as it will lower the cost of doing business, give a strong boost to business and industrial activities, provide easy credit and loaning facilities to trade and industry, promote better investment and exports and generate more tax revenue for the government.