APTMA Anticipates Increase in Exports by This Month
The Pakistan Textile Mills Association (APTMA) is anticipating a significant increase in textile exports, with a goal of reaching 45% of exports by May and 55% by June. This ambitious target is based on the growing demand from the US and European markets, particularly for online sales.
Challenges in Achieving Export Goals
According to APTMA CEO Shahid Sattar, the textile industry faces several challenges in achieving its export goals. In a letter to Abdul Razak Dawood, Commerce Secretary for Advisor, Sattar highlighted that the industry’s exports fell by 64 percentage points in April compared to the same month last year. This means that the textile industry was only able to export 36% of its capacity, even during the lockdown period when markets and transportation services were closed.
However, Sattar noted that the industry’s decision to diversify its product lines to include hospital and PPE clothing has helped to acquire a fair market share. He acknowledged the role of the consultant in obtaining necessary approvals from the Drug Regulatory Authority in Pakistan, which has been instrumental in supporting the industry’s efforts.
Liquidity Crisis and Export Recovery
Aside from falling demand, the complete lack of liquidity in the market is a significant obstacle to the recovery of exports. The monetary crisis has been exacerbated by the full closure of domestic retail, cancellation of credit-based export orders, and delayed payments from buyers in the export sector. Furthermore, the failure to defer interest rates in the quarter ended March 30 and the amounts determined by the Federal Board of Revenue (FBR) have added to the industry’s financial woes.
Sattar emphasized that the FBR’s decision to levy VAT on all inputs without refunding VAT on exported goods until January 2020 has also contributed to the industry’s liquidity crisis. The FASTER system’s failure to account for the full amount of the claim in the VAT return has resulted in a significant portion of the amount being canceled, unpaid, or postponed.
APTMA’s Concerns and Recommendations
The APTMA has raised these issues with the FBR over the past eight months, but to no avail. Sattar stressed that the FBR’s FASTER system has serious drawbacks, including the lack of a mechanism to resolve deferred payments. These shortcomings result in a loss of 25 to 35% of the required amount, which translates to a turnover of 4 to 5% and affects the overall profitability of a large majority of textile companies.
Sattar recommended that the FASTER system needs serious revisions and changes to address the complexity of the textile sector. He also highlighted that the interest rate on loans that ended March 30 was estimated at Rs. 26 billion (Rs. 700 billion at 15 percentage points) plus Rs. 4 billion (Rs. 30 billion in concession financing). According to banking practices, KIBOR plus base rates are set on the last day of each quarter, and since the State Bank of Pakistan’s (SBP) rate cut has been in effect since April 16, the industry continues to pay higher rates of about 15 to 16%.
FAQs
- Q: What is the APTMA’s export target for May and June?
A: The APTMA aims to reach 45% of exports by May and 55% by June.
- Q: What are the challenges facing the textile industry in achieving its export goals?
A: The industry faces challenges such as falling demand, lack of liquidity, and the FBR’s FASTER system shortcomings.
- Q: How has the FBR’s FASTER system affected the textile industry?
A: The FASTER system has resulted in a significant portion of the VAT refund being canceled, unpaid, or postponed, affecting the industry’s liquidity and profitability.
The total debt of the textile sector is estimated at 1 trillion rupees, and the industry simply does not have the liquidity to pay these amounts, as well as the VAT on intermediate consumption, which will remain stuck in the system for another six months. The APTMA is urging the government to address these issues and support the industry in achieving its export goals.
