APTMA Calls for Bold Steps to Hit $35.5 Billion Export Target

ISLAMABAD: All Pakistan Textile Mills Association (APTMA) on Monday called on the government to take bold steps to meet the IMF’s envisaged export target of $35 billion for the current fiscal year under the financing facility expanded (EFF) revived.

APTMA Chief Patron, Dr. Gohar Ejaz, in a written letter to Prime Minister Shehbaz Sharif, said that to achieve the overall export target of $35.5 billion, textile exports would need to reach $24 billion in FY23; $4.5 billion higher than in FY22.

The letter proposed six steps for sustainable growth of textile products, including a commitment on long-term energy tariffs; an industrial gas tariff for the country; first priority to the export value chain for the country’s export-led growth, supply of gas/RLNG to new units and expansion; need for working capital and unimpeded importation of essential inputs.

Gohar said an additional capacity of $500 million per month was being added to the textile sector as TERF empties 100 new projects. However, even the existing capacity has not been fully utilized at present due to energy supply and quality (especially gas/RLNG) constraints over the last 6 months. This inability to effectively harness full capacity has reduced Pakistan’s exports by around $800 million a month, or $10 billion a year, he pointed out. “We have set ourselves the goal of reaching $50 billion in textile exports over the next 4 years,” the letter reads.

To maintain the current export level, he urged the government to commit to long-term power supply at a competitive regional tariff. Currently, gas/NGL and electricity tariffs were notified on a monthly basis. “It is of the utmost importance to commit energy tariffs on an annual basis,” he said in the letter.

The textile sector in Punjab received only 50 MMcfd of gas/RLNG for captive electricity and 25 MMcfd for processing. Punjab hosts over 50% of Pakistan’s installed capacity, and these plants require 200 MMcfd of gas/RLNG to operate at full capacity.

Given the quality of the network supply and the delay in the expansion of electrical connections, adequate gas/NGL supply becomes critical. Industry’s share of gas/NGL consumption fell to 16% from 19% just a year ago. He urged the government to restore priority to the export sector and assess and ensure the best use of scarce resources for Pakistan’s economic stability.

“The gas allocation base should be changed to 50% of the sanctioned load rather than the arbitrary figure of 50% of September, October and November consumptions,” the letter said.

Mentioning the issue of working capital, Gohar said, “Despite the fact that our currency has depreciated by 60-70% over the past year, exports have reached a value of over Rs 3 trillion, but working capital has not increased. In fact, 50% more working capital is needed to cover the gap created by the depreciation of the exchange rate.

He said the industry needed twice the amount of working capital currently available, instead imposing a sales tax on domestic textile sales had created a vicious cycle of unpredictable refunds. The export cycle lasts up to 5-6 months, in which the sector’s liquidity remains linked to the sales tax process until reimbursement (6 months). In FY22, the total amount withheld by FBR as sales tax on domestic sales was Rs 60 billion out of the Rs 249 billion collected. More than Rs 250 billion of industry liquidity remains with the FBR at any given time through this collection and reimbursement mechanism.

Sales tax is consumption-based, which inflates inventory and capital costs, creating a barrier to new projects as the capital cost increases by 20% and reimbursement only occurs after business operations.

According to an IMF report, the cascading effect of the GST has hurt Pakistani exporters due to a lack of systemic methods to ensure that all taxes paid on inputs are charged to a final sale and refunded. Exporters are suffering from this huge sales tax collection and refund cycle due to delayed, pending and deferred refunds.

It would therefore be prudent to restore the SRO 1125, that is to say the zero rate for the entire textile value chain to meet the need for working capital. This policy action, coupled with the continuation of the RCET, would be essential to keep the textile sector on its way to meeting its $24 billion target for FY23.

He also raised the issue of unfettered importation of essential inputs and said that imports under Chapters 84 and 85 were limited. Exporters were unable to clear goods for 3-4 months. The State Bank of Pakistan has indicated that imports under the said chapters will only be cleared for major direct exporters.

Given the nature of the export sector of the textile sector in Pakistan, inputs for intermediate goods were sourced from various firms along the value chain. These indirect exporters must continue to operate for the sector to sustain and grow exports. It is therefore essential that all imports from export-oriented sectors, whether under Chapters 84 and 85 or other codes, enter Pakistan unimpeded. “The impact of the customs clearance delay of the past 2-3 months will be significant, and further damage to export potential must be avoided at all costs,” the APTMA Chief Boss said.

Gohar said the textile sector has pledged to set up 1,000 garment factories near major textile producing cities – Lahore, Sheikhupura, Faisalabad, Kasur, Multan, Sialkot, Rawalpindi, Karachi and Peshawar. The investment would be over $7 billion over the next 4 years. This would generate $20 billion in exports per year and employ over 700,000 workers.

For this theme to be successful, it was necessary to train the workers on the different stages of the value chain, including sewing and weaving. TEVTA should be charged in this context, the letter adds.

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