Textile exports likely to fall by $3 billion in FY23: APTMA

ISLAMABAD: All Pakistan Textile Mills Association (APTMA) raised alarm over a downturn in the textile exports on Friday, saying the exports in FY2023 were likely to shrink by $3 billion as compared to the previous year, in the wake on non-availability of raw materials amid an economic turmoil in the country.

At present exporters are turning away orders as they are not sure of the availability of raw materials, cost competitiveness or availability of working capital to fulfill orders. The damage to Pakistan would not only be lower exports this year but also the permanent shifts of orders to other countries, which would be very difficult if not impossible to reverse, according to APTMA.

Dr Gohar Ejaz, patron-in-chief of APTMA, painted a gloomy picture of the textile industry in his letter to Prime Minister Mian Shehbaz Sharif on Friday.

“I write to you on a matter of grave and urgent concern,” Ejaz wrote to the PM, adding that the textile exports for February 2023 had clocked in at $1.2 billion while the sector could easily generate $1.7 billion per month in line with the exports achieved last year, he claimed.

Additional capacity had also been installed or was under installation through an investment of $5 billion (TERF/LTTF) but was not yet operational due to forex issues and the unavailability of energy, he added.

Textile exports are estimated to fall by $3 billion in the financial year 2023 from the exports achieved last year of $19.4 billion, without taking into account any increase from newly installed capacity given the trajectory of decline started from October 2022. On an annual basis, the loss of support for the balance of payments will be well over $6 billion per annum further deepening and exacerbating the unsustainable economic situation, according to APTMA.

Highlighting causes of the downward trend in exports, Ejaz said in February alone the textile exports went down by 28.14 percent. In October 2022, the exports plunged by 15 percent, in November by 18.39 percent, in December, by 16.05 percent, and in January 2023 the exports scaled down by 14.14 percent.

“The progressive decline in exports is a consequence of the moratorium on the import of raw materials, and essential spare parts, lack of adequate supply of energy at competitive prices, and failure of the sales tax refund system. All have contributed significantly to the closure of over 50 percent of the industry,” the letter read.

Import of cotton and other raw materials had been severely restricted without considering the consequences, it added. “Banks are not opening L/Cs [letters of credit] or retiring cotton or PSF imports through cash against documents. The industry is running out of stocks.”

APTMA chief asked the PM to take steps to reverse the ongoing declining trend of exports by ordering the authorities to clear all imports of export oriented sectors/zero-rated industry, which have arrived at ports whether against L/Cs or cash against the document. He called for allowing export oriented sectors to open L/Cs without hindrance for raw material machinery, spare parts, and other items to restore the industry’s supply line-all banks to be informed accordingly.

“Factories are no longer able to function due to a lack of maintenance for which spare parts have not been allowed to be imported.”

The letter also pinpointed about an adverse impact of the withdrawal of RCET (regionally competitive energy tariff), arguing that the decision of the government to suspend the RCET of electricity for EOUs (export-oriented units) across Pakistan had rendered the textile industry, especially in Punjab, uncompetitive within the country and the region.

“The price differential between effective electricity prices in Punjab and Sindh is more than 3.65 times, as EOUs in Sindh can generate electricity at Rs.12/kWh from gas being provided at $4/MMBtu while Punjab gets limited availability of gas/RLNG at $9/MMBtu,” it said.

The gas/RLNG being provided to EOUs in Punjab also comes with the caveat that it will not be used for electricity generation. Therefore, the only available energy for EOUs in Punjab after March 1st, 2023, will be grid electricity at over Rs40/kWh. It will necessarily shift available orders to cheaper alternatives internationally and within Pakistan, according to Ejaz.

He also requested the government to create a level playing field within the country by implementing a uniform gas price of $7 per MMBtu based on an industrial WACOG (weighted average cost of gas) for the export industry across the country.

Ejaz urged for maintaining Rs19.99/kWh at the actual cost of service (excluding cross-subsidy) for the export sector across the country to maintain competitiveness in Pakistan and internationally. He also stressed the government to accord first priority for gas supply to captive power plants of the export-oriented sector.

The letter mentioned that in FY22 the total amount retained by the Federal Board of Revenue (FBR) as sales tax on domestic sales was only Rs50 billion out of the Rs249 billion collected.

“Approximately, Rs250 billion of the industry remains with the FBR at all times as a result of this collection and refund mechanism. This indicates that 80 percent of production is being exported while only 20 percent is being consumed domestically,” it said.

ATPMA chief asked the government to restore SRO 1125, Zero rating for the textile value chain while collecting sales tax on domestic sales at the point of sale, and demanded immediate refund of all sales tax and other dues to cope with the ongoing liquidity crisis.