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November 21, 2018

Textile sector to benefit from export-led policies

Business

November 21, 2018

KARACHI: Textile sector is all set to benefit from new government’s export-led policies and rupee devaluation of around 22 percent against the US dollar since December last year, a brokerage analyst said on Tuesday.

“Rupee devaluation after three years of inflexible exchange rate is likely to restore the lost competency of textile companies,” Shankar Talreja, an analyst at Topline Securities said.

Besides, the government reduced energy tariff for Punjab-based five export-oriented sectors, including textile, to $6.5 per million metric British thermal unit (mmBtu), down 35 to 50 percent compared to the previous rates.

“With this move, Pakistan’s energy tariff comes in tandem with the regional countries (like, India and Bangladesh) at $5 to 7/mmbtu, which will help Pakistan in competing with these countries,” Talreja said.

The country is negotiating phase-II of free trade agreement (FTA) with China, “which would be a breakthrough for textile sector as currently Pakistan is paying tariff of 3.5 percent on yarn versus zero percent on Bangladesh and Asean (Association of Southeast Asian Nations) countries”. Tariffs on other textile products range from 4 to 9 percent versus zero percent in Asean countries, including Indonesia, Malaysia, Thailand, Philippines, and Vietnam. “We believe rationalisation of these tariff rates in FTA phase II would unlock potential of textile exports to China,” the equity analyst said.

Talreja further said US-China trade war is an opportunity for the regional players.

The US imposed tariffs on Chinese goods worth $250 billion and threatened to impose further $267 billion in tariffs. US imports from China were down 30 percent in August and September.

“This provides an opportunity to countries like Pakistan, Vietnam, Bangladesh and India to expand their footprints in the US market,” the analyst said.

The government is striving to increase exports among other options by reducing energy tariffs, providing incentives like drawback duties, and cheaper financing under long term financing facility and export refinance facility.

Under the strategic trade policy framework, the government set export target of $46 billion by 2023.

“We believe, aforementioned measures/steps are likely to help Pakistan textile sector to achieve its ambitious exports target,” Talreja added.