EDITORIAL: Pakistan’s textile industry is once again on the brink, with 40 percent spinning mills are said to be shutting down due to anomalies in the Export Facilitation Scheme (EFS). The crisis highlights a familiar problem: the government’s inability to strike the right policy balance.
On the one hand, the imposition of 18 percent sales tax on local supplies for export manufacturing is being justified as a necessary revenue measure. On the other, duty-free cotton imports under the EFS are draining foreign exchange reserves and undermining domestic producers. Without immediate corrective action, Pakistan risks pushing its flagship export earning sector further into decline.
The spinning sector forms the backbone of the textile value chain. If it collapses, the ripple effects will be felt throughout the industry, impacting yarn producers, fabric manufacturers, and garment exporters.
The closure of these mills has already resulted in substantial job losses, adding pressure to an economy already struggling with high unemployment and sluggish growth. Given that textiles account for over 60 percent of Pakistan’s total exports, the consequences of ignoring this crisis could be severe.
At the heart of the issue is the government’s attempt to balance revenue generation with trade facilitation. Industry leaders argue that the EFS, designed to support exporters, has instead created an unfair advantage for those importing duty-free inputs, leaving local producers struggling to compete. The result is an uneven playing field where domestic mills cannot sustain operations, leading to plant closures and production cuts.
The government’s policy contradictions do not stop there. While it promotes import substitution as a key economic objective, it is simultaneously encouraging reliance on foreign cotton.
This not only strains foreign exchange reserves but also exacerbates the country’s trade deficit. In the last fiscal year, Pakistan’s textile sector already faced challenges due to currency volatility and rising energy costs. Now, flawed taxation and import policies are further destabilising the industry.
The textile sector’s demands are straightforward: ensure that duty-free imports do not come at the cost of local industry. If the government aims to support exports, it must simultaneously protect domestic manufacturing.
A quota system, limiting duty-free imports to actual export needs, could prevent excessive reliance on imports while ensuring that local producers are not sidelined.
The government’s failure to act swiftly risks more than just economic losses. The textile industry is a major employer, and continued closures will further exacerbate Pakistan’s socioeconomic problems. Moreover, an unstable textile sector erodes investor confidence at a time when the country desperately needs investment to revive growth.
There is still time to prevent a full-blown crisis, but only if policymakers recognise the urgency of the situation. A balanced approach — one that safeguards revenue collection while protecting domestic industry — is the only viable path forward.
The alternative is an industry hollowed out by misguided policies, forcing Pakistan to rely even more on imports, further weakening an already fragile economy. The government must choose wisely before more spinning mills shut their doors for good.
Copyright Business Recorder, 2025
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