Exports sector faces liquidity crunch

LAHORE: The exports sector faces liquidity crunch as the Federal Board of Revenue (FBR) has failed to clear refunds, a senior economist said on Monday.
“This withholding of liquidity by the FBR has created a liquidity crunch for the exporting sector, senior economist Naveed Anwar Khan said.
He said this has created cyclic problems for the textile industry, as it sales both local and foreign have declined. The industry, Khan said, is sitting on huge unsold stocks.
The spinner stock cotton on a yearly basis is funded by bank loans, he said, adding that when banks examine their books they are reluctant to lend them as most of their resources are lying with the revenue authority or in the shape of unsold stocks.
Khan said that this has forced the spinners to buy cotton on a daily or weekly basis. The problem that they face in daily purchases is that the uniformity of the cotton suffers. With bulk purchases for the entire year, the spinners could buy cotton from same source or area, but in staggered buying the quality of end product suffers, he said.
Experts said that closure of mills in Sindh negates high power cost, while fall in textile exports in competing economies negates cost factor.
They said that Trade Development Authority of Pakistan (TDAP) Chairman S M Munir had conceded in a meeting with businessmen in Lahore that the export refunds struck up with the Federal Board of Revenue have crossed Rs225 billion. This in dollar terms at the current dollar rate of Rs105.47 comes to $2.13 billion that is higher than the average monthly exports of $2.041 billion (last year's annual exports were $24.5 billion).
The experts said that a leading textile tycoon from Karachi told the prime minister in September this year that he has closed one of his spinning unit. The spinners in Sindh produce power from gas that costs them Rs6.5 per unit, which is cheaper than the power available to Indian spinners, they said.
The power tariff in India is Rs6.5 per unit that in Pakistani rupees is equivalent to Rs10.27. They said after special discount of Re1 per unit for textile sector the price comes down to Rs9.13 per unit.
This, they said, is higher than the current Pepco power rate of Rs12.50, which is consumed by the spinners in Punjab. Even if the government brings down the power rates to the level of gas-run mills the issue would not be resolved, as capacities in gas-run spinning mills in Sindh are also closed, they said.
The experts said uptake of basic textile products in the global markets is an issue, but no policy measure could resolve this issue.
High textile growth economies such as Vietnam, Bangladesh and Indonesia have added substantial spinning capacities that have reduced their dependence on Pakistani or Indian yarn, they said, adding that getting export orders and their uptake of yarn has also declined.
Not only the Pakistani spinners, but their counter parts in India are also suffering from the issue of the disposal of the yarn produced by them. This is the reason that spinners in Pakistan are sitting with huge stocks, they said. Weaving mills have also witnessed a decline in their fabrics export and are not lifting yarn in sufficient quantities.
A spinner M I Khurram said that the yarn exports have suffered in line with the decline in the global uptake.
He said yarn exports average over 55,000 tons per month that is 10 percent lower than the average yarn exports of 60,000 tons per month, adding that it is mostly the domestic market where the spinners suffer.
Of the three million tons yarn produced annually in Pakistan, around 80 percent is consumed by the exporting sector, he said, adding that the remaining 20 percent is being consumed for domestic products. This market is taken over by imported yarn that is hurting the domestic spinning industry. Khurram said that the government did impose 10 percent regulatory duty on yarn imports, but regretted that the importers have nullified the impact of that duty through under-invoicing and wrong declaration of goods.