Sustainable path to $100 billion textile exports

Business Recorder

18-06-2025

The Government of Pakistan appreciates the proactive engagement of textile sector associations in highlighting the challenges faced by the value-added textile export industry. The sector's role in employment generation, foreign exchange earnings, and industrial development is well-recognised, and it remains a central pillar of the government's export strategy.
Recent concerns, particularly regarding the Export Facilitation Scheme (EFS), sales tax on cotton yarn, liquidity constraints, and market access barriers, have been raised vocally in national media. The government believes it is important to address these openly and constructively to foster a more sustainable and competitive textile export ecosystem.
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It has been argued that changes to the EFS have had an adverse effect on small and medium-sized enterprises (SMEs), leading to a loss of competitive edge, and there are calls for the restoration of the original scheme.
It is crucial to recognise and safeguard Pakistan's unique advantage in locally produced cotton yarn
However, the government's policy decisions regarding the EFS and the sales tax on cotton yarn are aimed at correcting long-standing market distortions and promoting equitable local value addition.
The imposition of 18% sales tax on imported cotton yarn is a step towards leveling the playing field. Previously, imported inputs for export under EFS enjoyed a 0% sales tax, while domestic materials for the same purpose were subject to 18%.
This created a significant disadvantage for local spinning and weaving sectors, encouraging reliance on imports even when local capacity existed.
This measure is intended to foster local manufacturing and strengthen backward linkages across the entire textile value chain, from cotton growers to garment manufacturers.
It is crucial to recognise and safeguard Pakistan's unique advantage in locally produced cotton yarn. This local supply chain serves as the lifeblood for countless small and cottage-scale manufacturers.
Unlike larger entities, these vital players often cannot 'dream' of importing yarn from other countries, relying heavily on the immediate and accessible supply of even small quantities (e.g., 4 bags) of local cotton or cotton/poly blends to run their knitting machines.
This segment is a significant employer and contributor to the value-added sector, and their ability to readily procure raw materials locally is a competitive edge that must be protected and amplified. The government believes these changes, over time, will strengthen the entire domestic ecosystem, benefiting all segments.
Concerns regarding the potential misuse of the EFS scheme by certain entities, particularly regarding the import of fine count yarns (60s, 80s, 100s) by some giants, are legitimate.
The government is committed to ensuring transparency and accountability. Any reported irregularities in the utilisation of imported raw materials and their correlation with export products will be thoroughly investigated to prevent exploitation of the scheme and ensure that its benefits are genuinely directed towards enhancing value-added exports.
Over-reliance on the EU and US markets makes Pakistan's exports vulnerable to external shocks
On the taxation front, there is emphasis on reinstating the exporters' final tax regime, stating its withdrawal has increased compliance costs and financial stress, particularly for SMEs. The government is committed to a transparent and equitable tax system.
While acknowledging concerns about compliance costs, the move away from the final tax regime is part of a broader strategy to broaden the tax base, enhance revenue mobilisation, and ensure fair contributions across all sectors of the economy. Simplification of procedures to minimise administrative burdens remains a continuous priority for the Federal Board of Revenue (FBR), and the focus is on streamlining processes rather than a return to regimes that may have inadvertently narrowed the tax base.
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Liquidity for exporters is a valid concern, especially regarding delays in rebates under sales tax, customs duties, DLTL, and DDT. The government is actively working to implement automated, time-bound mechanisms for refunds.
Substantial progress has already been made in digitisation, but exporters must also play their part in ensuring timely and accurate documentation to support this shift.
Internationally, the 29% US tariff on Pakistani garments has rightly been flagged as a limiting factor. However, a broader view reveals that Pakistan's average tariff burden in the US is still lower than that of many competitors, including Vietnam, Bangladesh, Cambodia, and China. Trade negotiations remain ongoing, and the government continues its diplomatic efforts to expand market access, including with the US.
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At the same time, Pakistan has already reaped substantial benefits from the EU's GSP+ status, with exports to the bloc doubling since 2014, reaching €8 billion in 2023. But over-reliance on the EU and US markets makes Pakistan's exports vulnerable to external shocks.
The global market is shifting rapidly to man-made fibers (MMFs), which now account for over 70% of global fiber consumption
The government encourages the industry to actively explore newer markets—East Asia, Africa, and emerging economies—just as competitors like Bangladesh have done with great success.
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Calls have been made for a national branding and marketing campaign for 'Made in Pakistan' garments. The government fully supports this, but such campaigns must be co-owned by the private sector, which has the insights, networks, and incentive to drive global brand building. The Ministry of Commerce welcomes partnerships on this front—through trade show participation, joint marketing funds, and digital campaigns.
Warnings about the closure of export units, rising unemployment, and foreign exchange losses are serious. Yet, these are precisely the outcomes the government seeks to prevent—not through short-term relief—but through structural reforms that build long-term competitiveness. These reforms must be seen in the context of a broader industrial modernisation agenda.
To reach the $100 billion export target, Pakistan's textile industry must break out of its over-reliance on cotton. The global market is shifting rapidly to man-made fibers (MMFs), which now account for over 70% of global fiber consumption. Pakistan lags far behind—with just 11% MMF share. Bangladesh, by contrast, has diversified aggressively into MMF-based apparel. Future growth lies in embracing these trends, and the government is committed to supporting this shift, including in technical textiles.
Furthermore, associations must also turn inward and propose strategies for domestic production of dyes, chemicals, polyester yarn, and accessories. These inputs form a large chunk of Pakistan's textile import bill and are critical for backward integration. Reducing import dependency not only saves foreign exchange but strengthens resilience.
Fiscal constraints are real, and every sector must contribute fairly to the national exchequer. Support for export industries remains a priority—but must be consistent with long-term fiscal sustainability and reform.
On a final note, I wish to draw attention to an ambitious initiative by the Government of Punjab: the establishment of a fully compliant Garment City on 250 acres at the Quaid-e-Azam Business Park in Sheikhupura. This industrial estate is designed specifically to empower SMEs with modern infrastructure and compliance standards. The government invites the textile industry to partner with it in making this a showcase for Asia.
Let us work together to strengthen Pakistan's textile value chain—through smart policy, shared responsibility, and forward-looking strategy. The $100 billion export dream is achievable, but only if we move decisively beyond short-term fixes and toward long-term transformation.
The article does not necessarily reflect the opinion of Business Recorder or its owners