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IPR: The Future of Pakistan’s Textile Industry Looks Cloudy

It’s no secret that Pakistan’s textile industry has struggled of late: According to the International Trade Administration’s Office of Textiles and Apparel (OTEXA), the country’s share of United States apparel imports was only 1.8% in the first half of 2015, compared to China’s grip on 32.3%—and a further decline could be on its way.

A fact sheet published Thursday by the Institute for Policy Reforms (IPR) warned that the lack of investment in upgrading technology and replacing old machinery in recent years will likely contribute to the country losing a greater piece of the global pie.

“The import of textile machinery reached a peak of almost $1 billion in 2004-05. Since then, it has fallen to less than $500 million annually,” the think-tank said.

Frequent energy shortages and the rising cost of electricity, gas and raw materials are to blame, too, as well as an appreciating currency. The IPR continued, “The rupee remains significantly overvalued and this has impaired the competitiveness of our exports.” The State Bank of Pakistan has said the rupee is now overvalued by 18 percent. China, meanwhile, lowered the yuan last week and Vietnam devalued the dong on Wednesday.

“What our policymakers probably do not realize is that there is a low-intensity trade war going on in the face of slow growth in world trade, especially of imports by the European Union, Japan and the U.S.,” the IPR said, calling on the government to shift its focus to stimulate exports.

Its suggestion: Reduce the nominal exchange rate “at least to the extent of rise in costs due to recent tax moves and pricing of electricity,” or take a leaf out of India’s book and opt for an export rebate scheme.