Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) chief co-ordinator Ijaz Khokhar stated that the "9 percent growth in readymade garments exports is a normal trend" and government efforts to boost exports are 'invisible.' He elaborated that the "Textile Ministry is handicapped as the government has not given it any role to augment trade" and disturbingly added that 'a sizeable increase after the GSP plus acquisition has not been achieved as exporters were expecting.'
There is overwhelming reliance on cotton/textile exports in the country's total exports. Cotton manufacturers according to the Economic Survey 2013-14 accounted for 53 percent of total exports and registered a growth of 6.5 percent - approximately the same as the year before; the highest growth was in bed wear (20.4 percent), knitwear (10.7 percent) and readymade garments 7.5 percent (instead of the 9 percent quoted by Khokhar). All other subgroups registered growth with the exception of cotton yarn (negative 8.2 percent), towels (negative 3.2 percent) and art, silk and synthetic textiles attributed to unfavourable prices in the international market (due to an ongoing global recession) as well as increased domestic demand. Raw cotton exports registered a whopping 41 percent increase due mainly to favourable prices overseas. Thus our cotton subsector's exports are a function of not only demand but also international price.
The government's efforts to promote cotton exports have been invisible, so charged Khokhar. However, the federal Finance Minister, Ishaq Dar identified a comprehensive list of issues facing the sector in his budget speech namely "poor crops, delays in introduction of quality seeds and regulatory approvals of Bt cotton, widespread energy shortage, numerous local taxes and levies, high cost of finance and restricted trade regimes adopted by importing countries." The Finance Minister did not identify political uncertainty as a key factor, as in June there was little evidence of the looming political clouds. Be that as it may, Dar announced a range of incentives for the sector that included (i) drawback for local taxes and levies would be given to exporters who enhance exports beyond 10 percent (a condition that few if any would be able to meet given the subsector growth rates noted above); (ii) reduction in mark-up rate under export refinance scheme from 9.4 percent to 7.5 percent (which would reduce costs), (iii) expeditious refund system improvement that the government may not be able to implement in the event that it fails to meet quarterly revenue targets agreed with the International Monetary Fund; (iv) protection as per National Tariff Commission, which again has not yet been implemented; (v) value-added sector would be provided long-term financing facility at 9 percent for 3 to 10 years - a rate which appears high; (vi) extension of duty-free textile machinery imports by two years to enable taking advantage of GSP plus; (vii) expediting Bt approvals; and (viii) vocational training which has yet to commence.
There is, of course, no doubt that the treasury is severely strapped for cash and the government cannot begin to provide the incentives that the textile sector requires to take full advantage of the GSP plus status extended by the European Union. Khokhar lamented the almost zero role of the Textile Ministry in fuelling exports, however, while this may be related to lack of funds yet a better option would have been to shut down the Ministry and thereby generate savings rather than to sustain it with funds without enabling it to do its job.
The Finance Minister, however, has compromised the growth rate with his focus on reducing the budget deficit. To insist that the IMF would not be flexible when presented with the argument that deficit reduction should not be at the cost of economic growth is simply untenable; and one can only hope that during the forthcoming fourth quarter review with the Fund staff under the 6.64 billion dollar Extended Fund Facility that the Pakistan authorities argue in favour of growth at the cost of a slightly higher deficit target.