Poor textile sector output main cause of low exports

The State Bank of Pakistan (SBP) said on Monday that poor performance of the textile sector was mainly a reflection of sharp slowdown in its exports. In its second quarterly report, the SBP said that the country's overall exports went up by 7.9 percent to $11.7 billion, while imports grew by 22 percent during July-February FY08 mainly due to the rising international commodity prices coupled with domestic supply constraints of some key commodities.
As a result, the trade deficit recorded a sharp $3.5 billion rise to $12.5 billion YoY increase during the period. With this expansion, the ratio of trade deficit to GDP worsened from 6.2 percent in July-February FY07 to 7.9 percent in July-February FY08, the report added.
Ironically, the deceleration in textile exports was despite the substantially high subsidised financing for working capital, fixed investment, and concessional export finance in recent years, and appeared to be driven by structural impediments in the industry as well as recent slowdown in US demand for textiles, the SBP said.
"Besides this, supply and operational bottlenecks like decline in fiscal year 2008 cotton harvest, electricity & gas shortages and deteriorating law and order situation in the country, further worsened the textile sector's weak performance during the period", the report said.
The SBP said that poor cotton harvest and the resultant growth in cotton prices appeared to be the most critical factor in deteriorating competitiveness of domestic textile.
The composition of export growth, on the other hand, represented a structural shift. The growth in exports during July-January FY08 was on account of a rise in non-textile exports--mainly other manufactures and petroleum group--whereas textile exports recorded 3.4 percent year on year fall during this period.
The decline in the textile exports was broad based with only the exports of synthetic textiles, readymade garments and textile made-ups registering growth.
Fall in the textile exports was attributed to both supply and demand factors. On the supply side, textile exports were adversely affected by the rising cost of production due to increase in domestic cotton prices and tariff rates, as well as by the frequent power shortages and political unrest. On the demand side, textile and apparel product exports appeared to have suffered from the slowdown in the US economy.
However, the SBP projected that textile exports were expected to recover when political environment in the country improves and importers become confident with regard to timely fulfilment of export orders.
Having said this, the recovery may not be sharp due to acute power shortages and rising domestic cost of production. The overall export growth was nevertheless likely to pick up on the back of rising non-textile exports, the SBP added.