On Friday, leading value-added textile exporters walked into a commerce ministry meeting with a message that has grown harder to ignore: Pakistan’s biggest export sector says it is being priced out by high input costs, financed too tightly to fulfil orders smoothly, and forced to operate under rules that change too often for international buyers’ timelines.
Commerce Minister Jam Kamal Khan and senior officials were presented a list that has become the industry’s standard brief — upfront taxes, elevated energy tariffs, infrastructure constraints, and a liquidity squeeze worsened by refunds that remain pending. Exporters argued that these pressures have started showing up directly in export outcomes, with the ministry meeting framed around consecutive declines in value-added textile exports.
What made this meeting different was less the content than the urgency behind it. In the exporters’ telling, the old obstacles are no longer temporary irritants that can be managed quarter to quarter; they have become structural constraints that, over two decades, helped Pakistan lose ground to regional competitors that built scale, improved reliability, and locked in policy stability long enough for firms to invest with confidence.
What the industry is asking for
The demands presented to the commerce ministry can be grouped into a simple proposition: exporters want the state to stop tying up cash, stop raising the cost of production, and stop making compliance a moving target. In the short run, they want working capital to flow more predictably, and trade facilitation schemes to be designed around the realities of buyer contracts and production cycles rather than administrative convenience.
The most immediate pain point is liquidity. Industry representatives told the ministry that pending refunds and upfront taxes combine to trap cash inside the system — money that would otherwise pay suppliers, wages, and utilities, or finance raw material for the next order. When that cash is delayed, even exporters with confirmed orders can find themselves scrambling for short-term credit to keep production running.
Energy costs sit at the center of the competitiveness argument. Exporters pointed to elevated power and gas tariffs as a direct hit to unit costs, and argued that Pakistan’s pricing puts it at a disadvantage against regional rivals that run mills with cheaper energy. Based on interviews across the value chain, energy is the dominant constraint in upstream processes like spinning and weaving, where electricity-heavy machinery drives conversion costs.
Financing is the third leg of the industry’s case: the sector says it is not just paying more for energy and taxes, it is also being constrained in how much it can borrow against export business. At the ministry meeting, exporters highlighted what they described as inadequate credit limits under the Export Finance Scheme, saying the ceilings restrict access to working capital needed to turn orders into shipments.
Alongside the big-ticket items, exporters pushed on bottlenecks that look technical but matter day-to-day. They raised limitations of the Temporary Importation Scheme, including reduced utilisation periods, arguing that the timelines and constraints make it harder to import inputs temporarily, process them, and ship finished goods in sync with buyer schedules. They also pointed to frequent policy changes as a cost in themselves, because a shifting rulebook turns long-term planning into guesswork.
The commerce ministry’s response was to restate government support for a sector described as a cornerstone of exports and employment. The ministry also said a dedicated technical committee had been constituted to review the limited utilisation period under the Export Facilitation Scheme and to recommend immediate remedies.
A separate but telling demand came from representatives of micro, small and medium enterprises: they urged the State Bank of Pakistan and Exim Bank to issue explicit regulatory guidelines so commercial banks uniformly accept foreign master letters of credit as collateral when opening back-to-back letters of credit. The goal, exporters argued, is straightforward — unlock working capital so smaller exporters can execute orders without tying up scarce cash or relying on uneven bank-by-bank discretion.
Taken together, the task maps to a familiar export-sector playbook: reduce the cost base, stabilize rules, and make short-term liquidity less fragile. But the context in which these demands are now being repeated is shaped by a longer story — how Pakistan’s textile model evolved, where it stalled, and why the gap with rivals has widened.
Why these demands are coming now
Pakistan has long been a textile economy in a literal sense — cotton cultivation and textile production are deeply embedded in its history, and textiles remain the country’s largest export-oriented sector, accounting for roughly half of exports in many years. That dominance, however, has not translated into sustained momentum in global market share, particularly compared with countries that built large, policy-supported export machines around apparel and higher-value products.
The competitive reversal is stark: in 2003, Pakistan’s textile exports were reported at $8.3 billion, compared with Vietnam at $3.87 billion and Bangladesh at $5.5 billion; today, Vietnam and Bangladesh are reported at roughly $46.68 billion and $47.96 billion respectively, while Pakistan has struggled to cross $20 billion over the past five years. The point is not just that rivals grew faster — it is that they built enough reliability and cost discipline to scale to levels Pakistan did not reach.
The industry’s timing is also linked to a supply-chain squeeze that begins far upstream: cotton. Pakistan’s cotton output has fallen sharply over two decades, citing a drop of about 65% from 14 million bales in 2005 to 5 million bales last year, alongside shrinking cultivation and problems tied to seed resilience and changing conditions. As domestic cotton became less dependable, the industry increasingly relied on imports to fill gaps — an adjustment that can work, but one that adds exposure to global prices and currency dynamics.
Energy costs remain central because they hit precisely where Pakistan has historically had scale: spinning, weaving and processing. Even if the exact competitive gap varies by contract and tariff category, the strategic claim is consistent: when upstream conversion costs rise, the entire chain becomes less viable, and value addition downstream cannot compensate if the base is too expensive.
Taxation and refunds complete the picture. This is a system in which exporters face multiple tax burdens and, critically, delays in getting refunds that are supposed to neutralize taxes embedded in exports. The industry’s argument is that many countries either do not tax exports or ensure refunds are timely, whereas exporters in Pakistan spend time and working capital navigating refund bottlenecks. That complaint closely matches what exporters raised at the commerce ministry meeting: upfront taxes and liquidity pressures from pending refunds.
What turns these issues into a moment of heightened pressure is how they interact. High energy costs raise the cash needed to run a unit. Tight financing limits how much of that cash can be borrowed against future export receipts. Upfront taxes and delayed refunds keep more cash locked away. And policy uncertainty raises the perceived risk of investing in new machinery, materials, or product lines that might take years to pay back. None of these constraints, on its own, is necessarily fatal; together they can make even a strong order book feel precarious.
This is where the exporters’ demand for policy consistency becomes less rhetorical and more operational. Apparel exporters plan seasons; buyers plan assortments; factories plan capacity, staffing and input procurement months ahead. If energy pricing, scheme rules, or tax mechanics change frequently, the burden is not just higher cost, but the inability to promise reliability — something regional competitors have often sold as their core advantage.
What might happen next
The near-term outcome hinges on whether the government’s process steps translate into bankable policy changes that exporters can price into contracts. The technical committee on the Export Facilitation Scheme utilisation period could produce quick wins if it results in timelines and procedures that match production realities and reduce compliance risk. But exporters will likely judge success less by committee formation and more by whether shipments become easier to finance and execute.
On financing, clearer guidance on accepting foreign master letters of credit as collateral for back-to-back LCs could be especially consequential for smaller exporters. If banks apply a uniform standard, it could widen access to working capital for firms that have orders but lack spare collateral. In practice, that might shift the system from one where only large players can smoothly convert demand into exports, to one where mid-sized and smaller firms can compete on delivery and responsiveness — two metrics international buyers value as much as price.
On the cost side, the hardest issue is energy, because it intersects with broader fiscal and power-sector constraints. The industry’s argument is that upstream textile competitiveness depends on electricity pricing that does not leave Pakistan structurally above peers, especially where energy accounts for a large share of conversion cost. If that gap persists, the likely adjustment is not simply lower margins — it is reduced investment in upstream capacity, more closures, and greater reliance on imported inputs, all of which can make the sector more vulnerable.
Tax mechanics and refunds are often framed as administrative problems, but they can function like a shadow interest rate on exporters. When refunds are delayed, exporters effectively finance the state for months using their own working capital. That raises the cost of doing business even if headline tax rates are unchanged, and it forces firms to choose between borrowing more (if they can) or scaling down. If the liquidity knot is not loosened, a plausible outcome is a continued pivot toward domestic sales, where cash cycles can be faster and compliance burdens may feel more predictable.
Longer term, the direction of travel depends on whether Pakistan can align the entire value chain — cotton, energy, taxation, and export facilitation — toward a stable export strategy.
There is also a more immediate reputational risk that exporters worry about but rarely state plainly: international buyers can tolerate one-off delays; they adjust away from countries they view as unpredictably expensive or operationally uncertain. The exporters’ emphasis on policy churn signals an anxiety that Pakistan’s problem is no longer just cost, but reliability. If buyers bake Pakistan risk into sourcing decisions, recovery becomes harder because lost orders can take multiple seasons to win back.
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