EDITORIAL: The 10 percent year-on-year growth in textile exports in H1-FY2024-25 is welcome news for an economy often fraught with challenges and always struggling to build reserves. According to data provided by the All Pakistan Textile Mills Association (APTMA) and reported widely in the press, textile exports initially saw a 3 percent decline in July 2024. However, subsequent months showed positive growth, with export earnings rising by 13 percent in August, 18 percent in September, 13 percent again in October, 11 percent in November, and 6 percent in December.
The textile sector is one of Pakistan’s key economic pillars, of course, since it not only contributes significantly to foreign exchange reserves but also employs millions, directly and indirectly, across the value chain. Therefore, momentum in textile growth is always worth celebrating, but at the same time it also demands a serious examination of how sustainable this trajectory will be in the face of upcoming challenges.
One of the most pressing concerns is the rising cost of energy. The International Monetary Fund (IMF), as part of its loan conditions, has consistently pressed Pakistan to end subsidies and bring energy prices in line with market rates. This means a substantial increase in the cost of gas — a critical input for textile production. For a sector already operating on razor-thin margins and competing with giants like Bangladesh, Vietnam, and India, any significant rise in energy costs could be devastating.
Yet the Fund is showing no signs of flexibility, clearly demanding a substantial levy on gas supply to industrial captive power plants (CPPs) to eliminate any cost benefit between grid power and their in-house electricity generation. Under the USD 7 billion Extended Fund Facility (EFF), Pakistan has to deliver on one of the major structural benchmarks that required gas disconnections to CPPs by the end of January 2025 to qualify for disbursement of the second of the seven $1b tranches in March.
Energy naturally accounts for a significant share of production expenses in textiles, particularly for units dependent on gas-fired CPPs. Inconsistent and expensive energy not only undermines competitiveness but also disrupts production timelines, further eroding exporters’ ability to meet global demand. Now, reports that gas tariffs are expected to rise sharply as part of the IMF’s demands put policymakers in a fix. Suddenly, they need to find ways to balance IMF obligations with the needs of the industry.
Special energy pricing for export-oriented sectors, investments in renewable energy, and enhanced efficiency measures could provide relief, but these things take time and already the government is guilty of letting things come so far before thinking of doing something about the problem. It’s been reported that Pakistan already tried to get the Fund to change this structural benchmark on the grounds that there were some challenges to electricity grid stability and supplies. But it didn’t work and the lender instead suggested the imposition of Rs 1,700-1,800 per unit (million British thermal units or mmBtu) on top of the prevailing LNG price for CPPs in case of electricity supply challenge.
That means, unless something unforeseen happens between now and Feb-Mar, there’s little chance of a breakthrough. And the textile sector, among others, should brace for a significant jump in input costs. What that will do to exports, revenue and reserves should not be too hard to calculate.
Copyright Business Recorder, 2025
Comments