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Pakistan Cotton Shortage Near Catastrophic

Facing a barrage of unrelenting setbacks, Pakistan’s textile mills might be reaching their breaking point.

Already taking the brunt of the energy and fuel crisis and severe inflation, last month’s biblical floods have forced many small textile mills to the brink of closure—with hundreds estimated to have already shut down. 

While many of these are supply bedding products to the U.S. and Europe, the impact is growing.

While larger companies with richer cotton reserves have managed to keep up production, many warn that the lack of good quality cotton would result in the closure of their mills in the near term, unless they are aided with imports. 

“About 30 percent of Pakistan’s textile production capacity for exports has been hampered because of cotton and energy shortages,” Gohar Ejaz, patron-in-chief of All Pakistan Textile Mills Association (APTMA), told Sourcing Journal.

The industry urged the government to provide continuous power and gas supply to the industry at competitive rates, including a meeting with the federal minister for finance, Ishaq Dar on Thursday in Islamabad, calling for help regulating the power crisis and controlling production costs. 

The post-flooding cotton shortage has only exacerbated the fuel shortage. 

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Crop damages stemming from flash floods and monsoon rains affected 36 percent of the available sowing area with losses estimated at 3.24 million bales valued at approximately $1.53 billion, according to a report by the Policy Research Institute of Market Economy (PRIME). 

The expected cotton production of 9.03 million bales was revised down to 5.79 million, it added.

Pakistan is the world’s fifth-largest producer of cotton, exporting $3.4 billion worth of the fiber in 2021 and contributing roughly 6 percent of the global supply, according to United Nations data.

Abdul Rahim Nasir, chairman of the All Pakistan Textile Mills Association, said Pakistan would need to import approximately double the earlier estimate of 4 million bales, at a potential cost of $3 billion. 

These supplies would have to come in from countries such as Brazil, Turkey, the U.S., East and West Africa and Afghanistan.

Yet, foreign exchange reserves are at a crunch and analysts in Islamabad warn of a Sri Lanka-like bankruptcy collapse if authorities don’t carefully manage the crisis.

Finance Minister Miftah Ismail Pakistan cautioned that $41 billion in foreign exchange would be needed over the next 12 months. “We have to repay $21 billion loans, need $12 billion current-account deficit financing and another $8 billion to maintain foreign exchange reserves,” he said at a budget seminar last month. 

The disruption comes at a time when investments in the industry have been increasing, with a strong focus on machinery import with investments of more than $500 million to upscale. 

The industry was further buoyed by a positive outlook following the growth in textile exports over the past year, at $19.35 billion in 2022, a 26 percent upsurge from the previous year at $15.4 billion. 

The textile sector in Pakistan accounts for approximately 8.5 percent of the gross domestic product and more than 40 percent of the industrial workforce.

However, amid the economic chaos Pakistan stepped away from the brink procuring a $6 billion loan from the International Monetary Fund (IMF) in July. This means subsidies no longer apply to petroleum products and electricity, among other targets. 

“Under these difficult circumstances, an estimated 3 to 5 million direct employees of the textile sector are going to lose their jobs who are the breadwinners of 15 to 20 million people. This catastrophe, human tragedy, can still be avoided if remedial action is taken and appropriate government policies are aggressively implemented,” said APTMA’s Gauhar Ejaz.