PAK OUTWITTED BY BD, INDIA IN TEXTILE EXPORTS
July 9 - 15, 2012
Despite being second to none, the textile industry in Pakistan is lagging behind in terms of export earnings compared to Bangladesh and India, which earned $25 billion and $35 billion respectively in 2012 primarily due to enabling environment.
Acknowledging the growth potential of the textile industry, the State Bank of Pakistan (SBP) firmly believes in the rehabilitation of the textile sector, which is the largest export earner, one of the largest employment providers, and the largest investor in the country.
Yaseen Anwar, Governor SBP during a meeting with the office bearers and members of All Pakistan Textile Mills Association (APTMA) in Karachi, said that special committee would be formed to look into the problems of the textile industry to make it viable and competitive in the international market.
The textile sector is second to none and even in the present challenging economic scenario, achieving export value of around $12.4 billion is commendable as the price of cotton and cotton products have declined more than total decrease in value of textile exports as compared to last year. Replying to demand of reduction in the discount rate, Governor SBP said that we had reduced policy rate 200 basis points during the first two quarters of the last fiscal year but due to demanding reserve position and escalating inflationary rate in the last two quarters, we were unable to reduce it further. However, as soon as the above situations will improve we will reduce the discount rate further because we are fully aware that the high interest rate is one of the reasons behind drastic decline in domestic as well as foreign direct investment.
Mr. Yaseen Anwar assured the meeting that the state bank will issue notification in respect of technology up-gradation fund as soon as advise received from ministry of textile industry.
Mohsin Aziz, Chairman APTMA, in his welcome speech highlighted the challenges being faced by the textile industry of Pakistan. He said that although in the year 2010-11 our exports had reached the new benchmark of $14 billion, which we expected to take up to $16 billion in 2011-12, unfortunately we will just be barely crossing $ 12.4 billion, which is 11 per cent lower in value terms but in fact 30-32 per cent lower in quantitative term. Our neighboring countries India and Bangladesh have crossed $32 and $25 billion respectively because of the enabling environment specially designed by their governments for exports oriented industry and providing competitive cost of doing business mainly interest rates and availability of all amenities like water, electricity and gas through out the year at affordable and cheaper rates.
Mr. Aziz said that our regional competitors are enjoying lower and preferential interest rate provided by their respective governments to support their textile industry but on the contrary, in Pakistan discount rate is in the double digit which is an extra burden on the already ailing industry. He said that since SBP and ministry of finance do not come up to its rescue by providing preferential and lower interest rate, the industry, which was setup after lot of hard work and an achievement of many generations, is now on the verge of collapse.
He said that during the year 2003 to 2006 when the interest rates were kept low i.e. in the single digit, inflation interestingly was at its lowest and growth and investment in textile sector was ranging between $600 - $800 million per annum and in the year 2004-05, when the interest rate was around 7.5 per cent, the investment of more than $1.2 billion in textile sector alone was witnessed. These were the years when the threshold of $5 billion exports remained for many years crossed $10 billion.
Chairman APTMA further said that total nonperforming loans (NPLs) in June 2009 was Rs412 billion which has risen to Rs609 billion in March 2012, simply meaning that there is increase in NPL portfolio by 47 per cent in less than three years out of which the total NPLs share of textile sector is 33 per cent. Therefore, the government should take some urgent measures like rescheduling and restructuring of outstanding loans, relaxation of prudential regulations and bringing discount rate in the single digit. Otherwise, NPLs will increase, the industry will doom, the precious assets will be lost and the hard earned export markets will be taken over by our regional competitors where the governments along with the central banks are pursuing the policy of incentives and have realized thoroughly difficulties faced by their exporting industries specially textile. He urged the government to reduce the interest rate and save the bleeding industry.
He emphasized that government should on priority basis issue notification for technology up-gradation fund and release pending payments of textile policy initiatives under DLTL, R&D Facility etc. without any delay. Mohsin Aziz urged the need to provide level playing field so that the largest export earning industry of Pakistan could compete with its regional competitors and also export their products in the recession hit market of Europe and United States.
Gohar Ejaz, former chairman APTMA said that due to increasing financial imbalances and rising inflation capital is driving out of the country, weakening the investor's confidence, and affecting exports. In the present scenario, Pakistan needs investment and growth oriented policy specially for export-oriented sectors by reducing the interest rates because unless interest rates are lowered, there will be no investment and ultimately economy will not grow. He further said that 33 per cent of the capacity of textile sector is not working due to excessive load shedding of gas and 8 to 10 hours closure of electricity supply. Therefore, government should come up with specific proposal for the revival of this sector.