The country’s economy has rebounded strongly in FY-2021 posting a growth of 3.94 percent, which is not only substantially higher than the previous two years (-0.47 and 2.08 percent in FY-2020 & FY-2019, respectively) but also surpassed the target (2.1 percent for FY-2021). Despite strict fiscal constraints, timely and appropriate policy measures taken by the government resulted in a V-Shaped economic recovery.
At the start of 2021, amid worldwide vaccination campaigns, the global economy began to show healthy signs of recovery. However, the third wave of the pandemic adversely impacted the pace of economic recovery by slowing it down. The pandemic, which had already induced shocks like lockdowns, border closures, the collapse of trade, travel bans, gave yet another blow to the world economy by affecting the global supply chains.
For the Pakistani economy also, the pandemic became a severe challenge as the country was already under the pressure of stabilization required to address the Balance of Payments crisis that emerged in FY2018. Thus, both consecutive adverse shocks, stabilization pressure owing to the Balance of Payments crisis and COVID-19 pandemic, put the economy far below its potential level, which resulted in negative growth in FY-2020.
Read More: Pakistan’s Economy: long term direction?
However, GDP growth of 3.94 percent in FY-2021 is a V-shaped economic recovery which shows concerted efforts of the government for addressing structural issues to avoid further macroeconomic imbalances. The government also took some immediate requisite measures for sustainable and robust growth along with protecting the most vulnerable segments of the society.
Effective policy measures taken by the government to contain the virus, along with fiscal stimulus and monetary measures by the State Bank of Pakistan in FY-2020, helped to uphold the economy in the pandemic when severe economic depression was prevailing around the globe.
During FY2021, the government continued to support agriculture and industrial sectors and formulated short, medium, and long-term strategies to achieve inclusive, sustainable economic growth and social prosperity. Some of which are as follows:
- Export Finance Scheme (EFS) rate is maintained at 3.0 percent and Long-Term Finance Facility (LTFF) has reduced from 6.0 to 5.0 percent in FY2021. Per project, the LTFF limit has been enhanced to Rs. 5 billion from 2.5 billion.
- The total subsidies under the credit to exporters outstanding under both schemes (EFS and LTFF) were approximately Rs. 660 billion.
- The government launched the flagship Ehsaas Program in which total allocation was increased to Rs 208 billion in FY-2021 from Rs. 187 billion in FY2020.
- Prime Minister approved Rabi Package of Rs 5.4 billion and subsidy disbursement in Kharif season 2021 through Provinces on sharing basis (75:25) to reduce the input cost for the farmers. The Minimum Support Price of wheat has been increased to Rs 1,800 per 40 kg from Rs 1,400 per 40 kg to encourage wheat cultivation. The government slashed Federal Excise Duty (FED) on cement from Rs 2/kg to Rs 1.5/kg w.e.f 1st July 2020.
Regardless of strict fiscal constraints, the government implemented timely and appropriate policy measures. Thus, better management and fiscal stimulus kept businesses going and confidence high in FY2021—V-Shaped economic recovery despite stabilization pursuit.
Exports of textiles posted a 22.94% growth in FY 2020-21 compared to the same period a year ago. In absolute terms, the total exports of textile remained US$ 15.4 billion in 2020-21 against US$12.526 billion of the previous year. Exports of 13 sectors, including value-added textiles, posted double-digit growth in FY 2020-21 compared to the corresponding year. Growth in exports of value-added sectors contributed to an increase in overall exports from the sectors. One of the reasons for growth in these sectors is the low base of last year when export-oriented industries remained closed due to the Covid-19 lockdown and cancellation of orders from international buyers.
The breakdown shows exports of readymade garments went up by 18.83% to US$ 3.032 billion in FY21 against US$ 2.552 billion over the corresponding year. The exports of knitwear increased by 36.57% to US$ 3.816 billion against US$ 2.794 billion over the corresponding year. Exports of bedwear went up by 28.87% to US$ 2.771 billion against US$ 2.150 billion of the last year. A growth of 31.81% was seen in the export of towels to US$ 937.536 million against US$ 711.265 million in the last year. The export of leather garments went up by 14.02% and leather gloves by 22.26%; whereas, the exports of raw leather declined by 12.04%.
However, the journey of the textile industry has not been a smooth road. The emergence of the worldwide economic crisis coupled with rising manufacturing expenses, escalating energy tariffs, rising prices & shortage of raw materials, frail infrastructure, obsolete technology, and lack of investment are among major irritants in export growth.
Way Forward towards sustainable growth:
- The textile sector is on its way to recovery, witnessing a sharp surge in exports in FY 2020-21; however, the growth is being achieved through imports of cotton and man-made yarn. Cotton outputs in Pakistan in 2020-21 have plunged to a 21-year low to 5.3 million bales, whereas the textile sector’s requirement is 15-16 million bales. It has left the textile sector with no option but to import raw cotton from the US, Brazil, and Egypt. Immediate initiatives are required to increase cotton yield to fulfill the raw material requirements of the textile industry.
- Current conditions for the textile industry are very favorable; however, unprecedented hike in input prices at the international level and continuous fluctuation in the exchange rate has significantly increased the working capital requirements of the export industry. SBP’s Export Refinance Scheme is the only support for the exporters to meet the capital investment requirements. The total financing under ERF was Rs. 432 billion, which accounts for 10% of the total exports. In 2021, the textile sector showed significant growth in exports; consequently, their entitlement to Export Refinance has also been increased substantially. In order to create room for a growing number of export orders, ERS support should be enhanced.
- The initiative to provide energy resources to export-oriented industries at regionally competitive prices brought positive outcomes registering upward growth in exports. To continue this momentum, a continuous supply of energy at regionally competitive prices should be ensured.
- The government has taken exemplary initiatives to streamline the refund process; however, old outstanding refunds (Sales Tax, Income Tax, Custom Rebate) and textile policy incentives (Mark-up support, TUF, DLTL) have been pending since long and no road map has been given for disbursement of such refunds.
- Financial streams of the textile export industry have been squeezed as a major portion of exporters’ working capital is stuck in different refund regimes. Furthermore, 17% of finance remains held for 120 to 180 days on account of sales tax which has created an extreme cash flow crunch for exporters.
- SEZs are being established to promote industrialization and investment in the country, and several Chinese textile industries are making joint ventures with Pakistani counterparts. However, it is imperative to focus on the production of such raw materials that are being imported from China. This would help decrease the production cost of our export items.
Investment in Pakistan was constrained by many factors like low saving rate, fewer investment opportunities, lack of financial literacy, and access to capital. Moreover, a major chunk of the savings is parked in real estate and abroad. The government has taken measures to increase both savings and investment to augment the employment-generating ability of the economy as well as raise resource availability for investment.
In this regard, the Rozgar scheme, National SME Policy Action Plan 2020, Export Finance Schemes, and Construction Package are some notable measures taken by the government which has accelerated investment. As per ILO, unemployment has increased from 4.08% in 2018 to 4.65%.
E-commerce growth in Pakistan has been rapid in the last few years, especially during the pandemic. Recently, Pakistan has been added by Amazon to its sellers’ list, which essentially means that local Pakistani sellers can now list and use Amazon’s platform to sell globally. Thus, Pakistan has now joined the international market, which will enhance investment and produce employment opportunities.
Azizullah Goheer is a Certified Director CCG and a Certified project management professional PMP. He is presently serving as the Secretary-General of Pakistan Textile Exporters Association (PTEA), the premier association of textile manufacturers and exporters. He is a member of the Advisory Committee of Sustainable Textile Asia Region (STAR) and has previously worked with the Government of Punjab as a consultant. His industrial exposure is spanned on two decades during which he has served some of the leading global companies. The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.