Textile tailspin

The textile industry continues to be in a tailspin, with new data showing that output is down by over 14% in the year to date. The main driver was the rising cost of production due to high inflation and shortages of raw materials created by import restrictions. While the broad import restrictions have largely been a success, with non-energy imports crashing and putting the current account in a surplus position, the output drop they caused has also taken a toll on exports, which fell over 29% in April compared to the same month last year.

While some aspects of the restrictions may lead to economic rightsizing, they also threaten to send the industry, if not the entire economy, into disarray, as is illustrated by the seven million-plus job losses in the industry and supporting fields, as claimed by lobbying groups. Because the country is so reliant on textiles for export revenue, there is a very real threat that the decline in output will continue for long enough to further eat into exports and cancel out the current account surplus. Exports have been declining all year, except for a slight spike in August, which was attributed to backlog orders from the previous fiscal year.

Meanwhile, even if the restrictions force some textile players to improve productivity and efficiency, others may be squeezed out by the same new rules — textile machinery imports have fallen by over 55% in the year to date, which would suggest that Pakistani producers may fall further behind other textile exporting countries in the eyes of potential importers, thus shifting the output contraction from supply side to demand side at a time when the global economy may be moving towards recovery. This matters because the potential new customers created during the next period of global economic growth would likely be loyal to whoever they chose as their initial suppliers, and that is unlikely to be a Pakistani producer if our industry continues its backslide.