Shahid Sattar and Ureeda Majeed

Imagine living in a country which sees an annual food inflation of over 50%. Currency collapse or the daily price change for many developing and underdeveloped countries is now a reality. For such countries the fall in their local currency versus the dollar adds to inflation and as a lot these countries import most of their oil and gas they suffer from the double impact of rising energy prices and high exchange rates. Pakistan’s inflationary situation is no different. Inflation last month surged to 35 to 36 %, its highest level since 1974, according to the latest figures released by the PBS and the Finance Division has predicted inflation to remain high, and may even increase further due to market frictions caused by demand and supply gap, exchange rate depreciation and high prices of fuel and energy.

While traditional economic policies of the west fail to counter inflation in Pakistan, it’s not the only country battling this fate. The Turkish lira had lost its value even before the pandemic began. It lost more than 40% of its value in 2021. Surprisingly Turkey still successfully managed the crises and stood among a few countries noting a positive growth rate for the year 2020. Post pandemic, the lira crises drove up the import prices aggravated by Russian war in Ukraine hiking Turkey’s energy and import bills.

In Feb 2023 the average inflation rate in Tukey was 55.2%. This intense inflation of Turkey is attributed to the unconventional strategies adopted by the Turkish government. Unlike the central banks around the world raising the interest rate to bring down soaring inflation under control, in Turkey the spiraling inflation is tied to government’s efforts to fundamentally overhaul the economy, keeping the interest rates low in hopes that this will stimulate the economy and increase production.

Turkey’s economic policy is in contrast to the laws of traditional economic theory that has not been working well for quite some years now. May be the tradition laws of economics needs to rewritten or may be the economy of turkey is an anomaly however this strategy of keeping interest rates low now seems to have run its course and may not work well for Erdogan’s popular support and there seems little he can do in the coming days to reverse the downslide. As of Feb 2022, the Turkish government decided to address the rising inflation by reducing the value added tax (VAT) on basic food items. In addition, in 2021, the government provided the most impoverished with energy subsidies to the value of 12.2 billion $ thus aiming to support 50% of the price of natural gas and 25% of the price of electricity. In Dec 2021, the government also raised the minimum wage by 50% to help the struggling citizens.

The woes of the Pakistani rupees are not that different from the Turkish lira. Similar to Turkey Pakistan’s economy is heavily dependent on imports, high inflation and devaluation of currency which in combination are fast eroding the purchasing power of the minimum wage, public sector salaries and pensions. Keeping all the economic jargon, unorthodox policy and politics aside how do people actually handle inflation as high as 50% in these economies in which it seems prices are not determined by market forces but sheer speculation about exchange rate and devaluation. Today if one buys a dozens of eggs for Rs 238, two days later they may be buying them for Rs 350 and the reason of this price hike can be anything from high cost of chicken feed, high transport cost, high fuel cost, high electricity costs, war in Ukraine to ineffectiveness of the past governments. The inflation itself becomes the cause of more inflation. A vicious cycle of satanic hyperinflation. If the price of household items such as milk, eggs, sugar and the flour are changing daily what’s a bakery to do. If we move up the scale complex enterprises and big businesses with multiple inputs and costs how do, they survive inflation. As a consequence of high inflation and with local currency losing value continuously it is not a surprise that even a street hustler of Istanbul sells his fake branded merchandise in dollars.

Since the abandonment of the gold standard and the Brettonwood Agreement developing nations have been desperately looking for ways to stabilize their domestic currency and ensure economic stability and prosperity. For majority of these countries one way of to stabilize their local currency is to peg the local currency to major convertible stable currency (which is dollar). The dollarization process can be partial or complete (full dollarization or currency substitution). The idea of using a stable means of transaction for trade make sense as Individuals want to maximize their purchasing power and protect their money / asset from shocks due to economic and political instability and depreciation especially if your currency is losing value 3 to 4 times a day.

Irony is that dollarization for smaller and less developed countries is the ability to trade in

currency that’s is stronger and more internationally recognized hence Trade becomes more stable and less prone to market volatility. In the long run it can encourage more international businesses to set up local offices to take advantage of the stable currency and help the local economies develop quicker. Developing countries become larger international players and the Balance of Payment is less prone to recurrent crises. Dollarization encourages FDI and as a whole financial and investment industry benefit from dollarization. It reduces the country’s risk thereby providing a stable and secure economic and investment climate. The diminished risk encourages both local and foreign investors to invest money into the country and the capital market and the fact that an exchange rate differential is no longer an issue helps reduce interest rates on foreign borrowing.

Many emerging markets economies already use dollarization to some extent. The financial/banking system of Panama for instance is a fully institutionalized dollarization, no exchange controls, or restrictions on the movement of capital, readily accessible credit with sophisticated lenders who are well known both locally and internationally and an active and modern capital market. Zimbabwe legalized the generalized the use of dollars in 2009 and later suspended the use of its local currency in 2015. This

reduced inflation, increasing it citizen’s purchasing power and increasing economic growth. However, it also meant that Zimbabwe had no control over its own monetary policy. In 2019 Zimbabwe reversed its decision and reintroduced its own Zimbabwe dollar and outlawed the use U.S dollar. In response to hyperinflation Bolivia underwent dollarization in early 1980’s. Dollarization paired with fiscal contractions allowed the country to control inflation and later in 1994 Bolivia transitioned to pegged regime with intentions to de-dollarize. European countries except UK and Switzerland accept Euro as their only legal tender replacing their own currency since 2002. Cambodia has dual currencies. The urban economy is governed by USD and the rural economy by their domestic currency Riel. Nepal and Bhutan use Indian Rupee and their domestic currency follow fixed currency peg.

What interesting in case of Turkey is that the country has found this unique balance between in Lira and international currency (Dollars or Euros). With a huge number of Doviz (currency exchanges) the shoe leather cost is minimum in the capital where official currency remains Lira while the currency in circulation is dollar. Workers are paid wages adjusted to international dollar. All business enterprises either accept dollars or euros or liras equivalents.

In a country like Pakistan where the people are rich and government is poor it’s not a surprise that there is often a high demand of dollars or dollars trading is being carried out in the black market.

Individuals want protect their money from losing value. In Pakistan there are generally three safe investments Gold, real estate and third foreign currency. It’s not a surprise that in Pakistan like all developing countries unofficial rates of dollar is high with frequent shortage of dollars in the market. The demand of dollars in the market will continue to increase as people want to hold onto a currency which is stable and is not under constant threat to lose its value. Multinationals are already paying their employees dollar equivalent wages. Overtime the businesses and enterprises in Pakistan are more likely to trade in dollars if they aren’t doing so already. In order to keep up with frequent price hikes, high interest rates and increasing energy bill it is only a matter of time before more people in Pakistan will want to be paid in dollars or at least in dollar equivalent inevitably pushing the Pakistani economy towards dollarization. The real question remains Do we really want to move in this direction?

Shahid Sattar and Noreen Akhtar

According to the Global Gender Gap Report 2021, Pakistan ranked 153^rd out of 156 countries on the gender parity index and 7^th among 8 South Asian countries, doing better than Afghanistan only (Accountabilitylab 2022). Half of Pakistan’s population is comprised of women. If engaged in economic activity, this percentage of the total population is high enough to promote sustainable economic growth in the country. However, Female labor force participation (FLFP) rates in the country are meager (only 23%), particularly in paid employment, representing a massive loss of potential productivity. The low FLFP has implications not only for the country’s economic development but also for women’s empowerment and safety (ADB 2020).

The World Bank Group’s economic memorandum 2022 for Pakistan states that Pakistan experienced some achievement in increasing FLFP rates over the past three decades. It showed an increase from 13 to 24% over the period from 1993-2019 (figure 1). Inter-provincial disparities, however, are high. For instance, Punjab has had higher levels of FLFP than Sindh, KP, and Baluchistan since 1992 (Accountabilitylab 2022).

Pakistan has some success in increasing FLFP over the past three decades

Figure 1: Labor force participation in Pakistan, 1993 – 2019 (World Bank Group 2022a).

Employment expansion for women in Pakistan was driven by an increase in self-employment and unpaid work. Unpaid work rose from 8 to 13% of the female working-age population while paid employment increased from 5 to 11% (mostly self-employment). However, waged jobs for women (better-paid and more productive jobs) remained stagnant since the early 2000s. This brings us to the conclusion that there is an existence of a trade-off between female labor force participation increase and job quality. On the other hand, quality jobs for men rose from 31 to 37% while the overall male labor force participation declined from 83 to 81% of the male working- age population between 1993 to 2019. Female employment was predominantly driven by more agricultural jobs, as the number of male jobs in agriculture declined (Ahmad, 2017; World Bank Group 2022a).

Pakistan has failed to increase female participation in the labor force, while its regional competitors have increased better-paid jobs for their working women to ensure their contribution to economic growth and prosperity. Bangladesh, for instance, has 60% more women in employment than Pakistan (Accountabilitylab 2022). Although similar to Pakistan, female employment in the trade and hospitality sectors is low, Bangladesh has raised female employment in other sectors. This has caused a higher share of Bangladeshi working women in the agriculture, manufacturing, and personal services sectors (World Bank Group 2022a).

The education gap between men and women in Pakistan is larger than in Bangladesh. In Bangladesh, 63% of women and 66% of men have completed at least primary education, while in Pakistan only 35% of working-age women have completed primary education or above compared to 52% of men of the same category. Pakistan, however, has a relatively higher share of people with secondary and tertiary education than Bangladesh. Workers with medium levels of education are underrepresented in Pakistan compared to workers with low or high education levels (World Bank Group 2022a).

Even among women having higher education, only 25% of those participating in the labor force have a university degree, which indicates that women with higher quality education do not enter the workforce after their degree completion, resulting in a significant loss of economic activity. The question ‘why most female university graduates do not enter the workforce in Pakistan’ requires more in-depth research and understanding, as it is crucial for the country to understand the nexus between economic growth and female employment to design policies to achieve greater gender justice (Majid and Siegmann 2021).

GAINS FROM CLOSING FEMALE EMPLOYMENT GAP

If Pakistan closes its female employment gap with Bangladesh, about 7.3 million new jobs would be created. The share of working-age women in employment would rise from 22% in 2018 to 34%. According to ILO, if the gender gap in female participation is reduced by 25% in Pakistan, a GDP rise of 9% is estimated, which is an increase of around $139 billion (Ahmad 2018). Agriculture would be the top sector with the newly created jobs for women (56% of the total increase in employment). Government, personal services, and manufacturing would be the next largest sectoral contributors of new female jobs adding 3.6 million jobs (World Bank Group 2022a). Thus, enhanced FLFP has the potential to significantly boost Pakistan’s GDP.

FLFP IN THE TEXTILE SECTOR

Pakistan’s textile and garment industry employs around 45% of the country’s total labor force. According to the Pakistan Institute of Labour Education and Research (PILER), about 30% of the workers in the industry are women (GIZ GmbH n.d.). Leading textile companies in Pakistan are actively endorsing inclusive and diverse workforce by expanding opportunities for female employees and organizing dedicated technical training for their skill development. The industry is showing a strong commitment to gender equality by devoting efforts to create gender-balanced working teams in the companies. However, in order to effectively close the existing female employment gap in Pakistan, gender balance in employment opportunities at all stages must be ensured on a larger scale in the entire industry.

According to a study conducted by SDPI (2010), women are employed for very few trades in the textile sector (i.e. Stitching and quality assurance) due to low skill development and training. Women experience biased attitudes from employers and very few receive permanent contracts compared to male workers. Provision of female employee benefits such as maternity leaves are not effectively monitored and career progression is comparatively slow in low and medium enterprises.

Japan International Cooperation Agency (JICA) published its Social and Gender Survey Report in 2016-17 for one of its projects on the textile/garment industry. The findings reveal the top three challenges highlighted by the majority of women working in the textile industry. These include lack of transportation, distance from home, and working hours. Moreover, it was stated that female employees expect facilities such as separate toilets, separate workspaces and technical training as they help them perform better in a secure environment but are least considered by the management.

Importantly, the repercussions of the current grave economic crisis and low exports in Pakistan are experienced by the female workers in the textile industry. Many have lost their only source of income while others are paid low wages. Besides, a large number of home-based workers are involved in the industry, who remain deprived of regular capacity development trainings, and other employee benefits. But, with rising requirements on human and labor rights from the international community, the textile industry is increasingly allocating resources to increase female employment and provide a safe working environment and facilities to the female workers.

CONSTRAINTS TO FEMALE LABOR FORCE PARTICIPATION IN PAKISTAN

Social and gender norms

Social beliefs majorly hinder women’s engagement in paid employment in Pakistan. Women are unable to independently decide their participation in labor markets. Women are permitted to work only under exceptional circumstances which include poverty, the so-called acceptable jobs for women, and a progressive mindset within families. In regards to private sector jobs, these are acceptable only if high earnings are to compensate for leaving children unattended and transport costs. Female employment growth in the trade and hospitality sectors is almost zero in Pakistan. Stringent social norms limit women’s participation in jobs that involve high customer contact and shared working spaces with men. It is estimated that overcoming this barrier alone can close the female employment gap by 50% (ADB 2016; JICA 2017; The World Bank Group 2022a).

Mobility

Women experience restrictions on leaving home to participate in the workforce. This concern is widespread among young (15-24 years) and rural women in particular. Thus, the societal norms restricting female mobility may affect around 70% of women in Pakistan. Importantly, what deters women from engaging in activities outside the home is the fear of sexual harassment and discrimination. The lack of transport facilities is another major constraint on women’s mobility. Efficient public transport is available in a few places and private transport options are way expensive (ADB 2016; JICA 2017; The World Bank Group 2022a).

Digital connectivity

Digital connectivity in Pakistan is limited for women. Only 6 and 15% of working-age women reported having used computers and the internet in the past three months in 2019. Access to mobile phones is widespread but with a major gender gap: 30% working-age women compared to 80% working-age men. Low access to affordable internet along with the fear of cyber harassment, lack of necessary digital skills, and stringent cultural norms associated with the use of digital tools has limited the potential of these facilities to support female employment (The World Bank Group 2022a).

Education and skill development

In Pakistan, the gender gap in educational attainment is wide. Around 51% of working-age women in 2018 had never attended school. However, in the case of those who have attended school, educational attainment is similar for both men and women, with higher attainment among women in urban areas. Women with secondary education often lack access to jobs that match their educational attainment and they get involved in unpaid or low-skilled occupations. Women with upper and post-secondary education have high access to wage jobs but limited access to training (The World Bank Group 2022a).

Domestic responsibilities

Women’s participation in the workforce is hindered by the heavy household workloads. This majorly includes childcare burden due to unequal distribution of childcare responsibilities across parents. Women are expected to forego economic opportunities in favor of the so-called respectable domestic roles (Majid and Siegmann 2021; The World Bank Group 2022a).

Home-based work

Between 1993 and 2018, about half of the increase in paid female employment came from jobs performed at home. Pakistan has 4.4 million home-based workers of whom 3.6 million are women. Home-based work has become an acceptable form of female employment in Pakistan, under the continued pressure of domestic responsibilities and social norms. Working from home has its own challenges for women. Home-based workers are the invisible workforce in Pakistan. The burden of work is unhealthy and women despite being full earners online are considered housewives (The World Bank Group 2022b).

Labor demand

Data indicates that gendered occupations are shaped also by employers’ perceptions and preferences for employing women. The belief that hiring women disrupts the workplace exists in five South Asian countries (Afghanistan, Bangladesh, India, Nepal, and Pakistan). In Pakistan, gender segregation is also evident across industries. For instance, 31% to 41% of jobs in the manufacturing, construction, wholesale, retail, hotel and restaurant, transport, storage, and postal sectors prefer male workers (The World Bank Group 2022a).

POLICY RECOMMENDATIONS

• Invest in safe and affordable transport for women, with a focus on female-only transport
• Digital connectivity and digitally-enabled jobs that include increasing access to affordable internet and training on cyber safety and skill development
• Invest in skill development and training programs to consider innovative options to support wage employment opportunities for women with educational attainment
• Existing laws relating to maternity leave and childcare must be enforced and investment in childcare support facilities must be made by the employer organizations in all sectors
• Conditions and opportunities for home-based workers must be improved by providing good working conditions and opportunities for learning and networking.
• Strategies and policies must be developed to support women entering new sectors or traditionally male-dominated sectors, and gender-based discrimination in recruitment as well as workplace harassment must be abolished
• Enforcement of laws against sexual harassment in the workplace, evaluation of their impacts and establishment of communication modes to discourage unsuitable workplaces for women

REFERENCES

Pakistan – Country Economic Memorandum 2.0 (worldbank.org)

Pakistan – Country Economic Memorandum 2.0 (worldbank.org)

https://tribune.com.pk/story/1655699/no-country-working-women

https://www.tandfonline.com/doi/full/10.1080/13545701.2021.1942512

https://gender-works.giz.de/competitions2020/pakistan-inspiring-change-women-in-action-in-the-textile-garment-industry-of-punjab/#:~:text=The%20textile%20and%20garment%20industry%20employ%20around%2040%25%20percent%20of,in%20this%20industry%20are%20women1.

https://www.theguardian.com/global-development/2023/feb/01/pakistan-textile-industry-crisis-women

https://www.jica.go.jp/pakistan/english/office/others/c8h0vm0000brl8b8-att/survey.pdf

https://sdpi.org/gendered-situation-analysis-in-the-textile-sector-of-pakistan/project_detail

https://www.adb.org/publications/policy-brief-female-labor-force-participation-pakistan

Supporting legal reforms to increase women’s workforce participation in Pakistan (worldbank.org)

The gender gap and economic participation of women in Pakistan – Accountability Lab

Barriers faced by women in labour market participation: Evidence from Pakistan | International Growth Centre (theigc.org)

Shahid Sattar and Noreen Akhtar

Agriculture remains an important sector for Pakistan’s GDP (contributes about 24% of GDP), exports, employment (female employment in particular), and poverty reduction (Pakistan Bureau of Statistics n.d.). Pakistan has shown a stable share of agriculture in GDP over the past three decades, while it has fallen for the aspirational comparators (figure 1).

Share of agriculture in GDP, 1990 – 2020

Figure 1: Pakistan’s share of agriculture in GDP over past three decades, in contrast with comparators (World Bank Group 2022).

Agriculture is a potential sector for poverty reduction in Pakistan, as a larger population share (poor in particular) lives in rural areas. While millions are employed by the sector, the output per worker has been stagnant for three decades and is median among its peers (figure 2). It expanded at an annual rate of less than 0.7% while the average for South Asia expanded four times this rate. This sluggish productivity performance is caused due to distortions created by state interventions that resulted in the resource concentration on four major crops (cotton, sugarcane, wheat, and rice), increased advantage of big landowners and banks at the expanse of small farmers, consumers and future generations and encouraged environmentally unsustainable practices (Ahmed 2020; World Bank Group 2022).

 Agricultural value added per worker in constant 2010 US$, 1991-2019

Figure 2: Agricultural value added per worker is low and stagnant in Pakistan relative to comparators (World Bank Group 2022).

PAKISTAN’S VULNERABILITY TO CLIMATE CHANGE

Climate change is an additional risk factor for Pakistan’s agricultural sector. Pakistan is experiencing rates of warming considerably above the global average. The projected data indicates that, even under the optimistic scenario (SSP1-1.9), the annual mean temperature, and number of days with a heat index greater than 35°C are likely to increase for Pakistan. Also, the extreme precipitation events leading to floods, droughts, and sub-daily extreme rainfall events are likely to increase, with much greater risks under the highest emissions scenario (SSP5-8.5) (figure 3) (Almazroui et al. 2020; World Bank Group 2022).

Over 75 million Pakistanis got affected by weather and climate-induced disasters in the past three decades with an estimated economic loss of above US$29 billion (World Bank group 2022). If Pakistan does not adopt the sustainable development scenario, the negative impacts of climate change on human health, ecosystems, and livelihoods will amplify to irreversible levels.

Climate change will, directly and indirectly, alter food production. Directly by altering CO₂ availability and temperature and precipitation patterns while indirectly by affecting water availability, seasonality, soil quality and submerging coastal lands, and increasing invasive species. Agriculture will also be affected due to climate-induced impacts on human health and labor force productivity. Further, Pakistan’s irrigation is majorly dependent on the surface water that will experience extreme pressure from climate change (Chaudhry 2017; World Bank Group 2022).

 Extreme temperatures have become more common

Figure 3: Projected mean temperatures in Pakistan, reference period 1995-2014, multi-model ensemble (World Bank Group 2022).

*SSPs represent possible societal development and policy paths for meeting designated radiative forcing by the end of the century.

*SSP1-2.6 represents a scenario where GHG emissions (and indirect emissions) are reduced substantially, following the sustainable development pathway

*SSP5-8.5 represents a scenario with very high GHG emissions

CLIMATE CHANGE AND CROP (COTTON) YIELD

According to the Climate Change Profile by Chaudhry (2017), with the rise of 0.5-2°C temperature, Pakistan’s agricultural productivity will decrease by around 8-10% by 2040, with major impacts on the predominant crops.

Regarding cotton yields, higher rainfall, and humidity levels negatively affect these yields. On average, an increase in humidity by 10% leads to around an 8% decline in cotton yields, while a similar increase in precipitation causes a 3.2% loss in yields. The 2022 floods in Pakistan, for instance, caused major losses to cotton with massive spillover impacts on the textile industry, as local cotton constitutes more than half of the industry’s required cotton input. As a result, the industry’s reliance on imported cotton increased while the cotton shortage is still persistent, thus threatening the industry’s sustainable functioning to a large extent.

It is estimated that the 2022 floods have affected around 40% of the annual cotton crop in Pakistan (Russell 2022). The world’s fifth-largest cotton producer is now engulfed by climate disasters with massive losses in cotton and its production. While Pakistan is still a major cotton consumer (third highest among all major cotton-growing countries in 2018) (Pakistan Economic Survey 2017-18), the mounting gap between cotton loss and its consumption has caused devastating economic losses to millions of farmers and the textile industry – Pakistan’s top export industry. The brunt of this economic instability has trickled down to thousands of industry workers whose only source of income is threatened. These challenges are compounded by a lack of research on more climate-resistant cotton varieties and sustainable cotton alternatives for textile manufacturing.

POLICY RECOMMENDATIONS

• Removal of import duties on climate smart-technologies

Climate-smart technologies help address climate-induced disasters including droughts, floods, and heatwaves, which are likely to be intensified in Pakistan. This includes water management strategies such as alternative wet and drying or laser leveling to increase productivity. Likewise, renewable energy (RE) technologies including windmills and bio-energy production units can be used for efficient water supply and storage and to power farm equipment.

Climate-smart technologies are subject to high import duties that have increased their domestic price and made them less feasible for adoption. As Pakistan’s major industries including the textile industry are experiencing mounting sustainability requirements from the global community of buyers including EU, these import duties need to be abolished in order to enable the industries reduce their carbon and water footprint by adopting these technologies.

• Investment in enabling services to connect farmers to markets and enhance their capabilities

Connectivity enhances agricultural productivity and farmers’ incomes by connecting them directly to the markets. In the case of Pakistan, cellphone access helps farmers to move cash crops as it improves timely coordination with traders at the time of harvest, thus minimizing loss. Therefore, both hard and soft connectivity is crucial to facilitate connectivity and information provision to farmers.

• Improvement in the innovation ecosystem, facilitate university-private sector and public-private sector linkages and increase R&D investment

This development is crucial to ensure sustainable growth in agriculture but also to promote research on more climate-resilient crop varieties such as cotton and their sustainable alternatives. This is also important to shift Pakistan’s reliance from only few major crops to a wide variety of crops that can be cultivated to overcome food insecurity in the country.

• Monitoring of sustainable farming practices

Farming practices in Pakistan must be regulated to avoid GHG emissions, unsustainable water consumption patterns and use of environmentally unhealthy inorganic fertilizer. This is necessary to avoid land degradation – an already major environmental challenge in Pakistan that has affected land productivity.

(World Bank Group 2022)

REFERENCES

Pakistan – Country Economic Memorandum 2.0 (worldbank.org)

https://www.just-style.com/news/pakistan-floods-hit-40-of-annual-cotton-crop/

https://link.springer.com/article/10.1007/s41748-020-00157-7#citeas

https://www.pbs.gov.pk/content/agriculture-statistics

https://macropakistani.com/agriculture-in-pakistan/

https://www.adb.org/sites/default/files/publication/357876/climate-change-profile-pakistan.pdf

https://www.finance.gov.pk/survey/chapters_18/02-Agriculture.pdf

Shahid Sattar and Ureeda Majeed

While inflation has become a major topic for debate in today’s world politics, it is actually a tale as old as time. The world’s first recorded hyperinflation came during the French Revolution, During the 20th century, seventeen hyperinflations occurred in Eastern Europe and Central Asia, including 5 in Latin America, 4 in Western Europe, 1 in Southeast Asia and one in Africa. The US came close twice – during the Revolutionary War and Civil War – when the government printed currency in order to pay for its war efforts. As it turns out throughout history hyperinflation usually coincided with wars, natural disasters and a series of ill-advised fiscal and monetary policy decision but at the core is a result of a rapid increase in the money supply that is not supported by growth in the economy.

Inflation can either be cost push (occurs when prices rise because production costs increase, such as raw materials and wages) or demand pull (caused by strong consumer demand for a product or service). Another form of inflation is defined as Built-in inflation which occurs when enough people expect inflation to continue in the future. Because of these shared expectations, workers may start to demand higher wages in order to anticipate rising prices and maintain their standard of living. Increased wages would result in higher costs for businesses, which may pass those costs on to consumers. Higher wages also increase consumers’ disposable income, increasing the demand for goods that can push prices even higher. A wage-price spiral can then be set in place as one factor feeds back into the other and vice-versa.

Today world’s inflation is being driven by high consumer demand and low supply in the economy. After the pandemic restrictions loosened up, the demand for goods skyrocketed while the supply couldn’t keep pace along with war in Ukraine causing further interruptions to the supply chain and increases in the prices of oil and food.

According to PBS Pakistan’s consumer price inflation jumped to 31.5% in February of 2023, the highest rate since June of 1974, following a sharp depreciation in the rupee and as the government announced a rise in energy prices and taxes to meet the International Monetary Fund’s loan conditions. At the same time, the consequences of last year’s devastating floods have accumulated economic difficulties. FAO in its recent “Food Security Update” attributes the high prices to generally stagnant production since 2018, stock losses and disrupted trade flows due to the 2022 floods, high agricultural input and transportation costs, and high headline inflation. Inflation in the developing world is mainly linked to import dependence. As the dollar goes up imports become more expensive. As exports rely on imports, exports don’t become competitive despite declining of rupee which leads to more devaluation and more inflation. With the high inflation state bank have to push up the discount rate to restrict the supply of money which slows down the economy. The cost of working capital for exporters increase and finances are not available for exporters due to increased interest rates as a result exports do not increase with the devaluation of rupee.

(Data Source: World Bank)

The State Bank of Pakistan is raising interest rates to make lending and investing more expensive through its monetary policy in order to imprison the inflation gennie back in the bottle. However, this text book solution might not work well for an economy like Pakistan. Raised interest rates can easily impact the labor market, causing unemployment levels to rise. Inflation in Pakistan is cost push and most important components of our Consumer Price index (CPI) are Food, Housing, Water, Electricity, Gas & Other Fuels, Clothing & Footwear, and Restaurants & Hotels. All of which remain unaffected by changes in interest rates.  Higher interest rates are unable to do anything about supply chain issues (such as shortage of wheat or ghee which may give rise to food inflation or shortage of cotton) that cause inflation to rise. The cost of food, housing and clothing and foot wear will continue to increase irrespective of interest rates and consumers’ basket will continue to become more expensive with standards of living continuing to decline.

At the same time the government is using fiscal policy to fix inflation by increasing taxes or cutting spending. Principally, increasing taxes leads to decreased individual demand and a reduction in the supply of money in the economy. However, taxing electricity, gas and fuel increases the cost of manufacturing for the industrial sector making our producers uncompetitive. Instead of fostering and nourishing healthy business and entrepreneurial practices the policies at present are stifling the economy. This burden of the increased cost is then transferred to the consumer through higher prices which further increases inflation. The increased taxes on energy are not only increasing household energy bills but also aggravating the situation by further increasing the cost of final goods and services thus overall again increasing the cost of consumer’s basket and decreasing the purchasing power of individuals.

Perhaps the most devastating fact remains that the rationale behind increasing taxes and interest rates is to decrease demand however no matter how much the taxes are raised the aggregate demand of the country continues to increase because of the increase in general population. As our population continues to grow it is putting immense pressure on whatever’s left of the dwindling resources of Pakistan. The demand for petroleum of Pakistan is inelastic in nature so increasing interest rates has no effect on its demand and consequently the economy continues in a downward spiral and inflation keeps on increasing.

As every morning the stock market awaits the finalization of the IMF bailout package only to be disappointed again and again, the economic crises in the country is constantly intensifying. With increasing political instability and declining reserves the country is on the brink of bankruptcy. While the ban on imports persists, with the consignments of raw materials stuck at ports the country awaits the release of $1.2 billion tranche from the IMF.

When the government increases the interest rates the government who itself is the lender of last resorts becomes the borrower. Pakistan’s government debt jumped by PKR 4 trillion or around 7.7% in January 2023 to reach close to PKR 55 trillion. Meanwhile, domestic debt rose to PKR 34.3 trillion by January end. The high interest rates only serve to raise country’s own costs.  In order to finance this debt, the government will have to continue to increase taxes and the will economy shrinks further. According to Moody’s Analytics inflation in Pakistan could average 33% in the first half of 2023 before trending low and a bailout from the IMF is unlikely to put the economy back on track.

PAKISTAN’S DEBT AND LAIBILITIES – SUMMARY (in Billion PKR)

	Jun-22	Dec-21	Sep-22	Dec-22
I. Government Domestic Debt	31,037.5	26,746.5	31,404.6	33,116.3
II. Government External Debt	16,747.0	14,796.5	18,004.5	17,879.8
III. Debt from IMF	1,409.6	1,188.4	1,731.4	1,724.8
IV. External Liabilities	2,275.6	2,055.0	2,440.3	2,486.5
V. Private Sector External Debt	3,596.3	3,029.6	3,900.3	3,799.2
VI. PSEs External Debt	1,675.7	1,205.3	1,805.8	1,792.3
VII. PSEs Domestic Debt	1,393.4	1,503.8	1,470.4	1,474.3
VIII. Commodity Operations	1,133.7	889.4	1,126.8	1,138.8
IX. Intercompany External Debt from Direct Investors abroad	905.1	785.0	997.5	931.2
Total Debt and Liabilities (sum I to IX)	59,698.9	51,725.6	62,406.6	63,868.2
Gross Public Debt (sum I to III)	49,194.0	42,731.4	51,140.5	52,720.8
Total External Debt & Liabilities (sum II to VI + IX)	26,609.2	23,059.8	28,879.8	28,613.8

(Source: State Bank of Pakistan)

The policy instruments used by the government are just not working and while the interest rates and taxes are increasing inflation in Pakistan continues to rise. One reason for why Pakistan is trapped in high inflation and interest rates spiral may be the structural issues in Pakistani markets. Pakistan’s economy is haunted by ineffective market mechanism causing disruption to already volatile and sensitive supply chains which are susceptible to environmental changes and economic and political instability. Unstable Markets are prone to shortages and surpluses. The matter is worsened by inelastic demand and consumption patterns which are deeply rooted in our culture and spending habits which cannot be changes overnight.

The old belief that invisible hand of the market will ensure efficient allocation is no longer in play because there are discrepancies in our system which prevent optimal allocation and efficiency. The government cannot rely blindly on market powers to play out anymore. Instead of the invisible hand of the market what we need is perhaps a very visible hand of the policy makers to rescue the country out of this spiral of low growth and increased inflation. Government should immediately reduce the discount rates and let the economy breathe so that it naturally breaks free of this whirlpool of inflation. A controlled intervention by the government by reducing its spending would tamp down on demand-fueled inflation, while at the same time restoring confidence in the ability of the federal government to pay down the debt and thus control inflation expectations. Policies such as reduction in import duties of critical raw material used for production will result in stability of final price of goods and services. Government can help control inflation by reducing tariffs and nontariff barriers that push up the price of goods, ending regulations that boost shipping costs, and encouraging production of renewable energy among other means. It can reform tax laws to increase tax base. The government can take practical steps towards making supply chains and demand systems more seamless and less prone to disruptions while promoting a healthy culture of savings and investments.

Shahid Sattar and Noreen Akhtar

Unsustainable industrial water consumption has become a massive environmental sustainability challenge. Discharge of untreated wastewater, lack of water-efficient technologies, and absence of recycling and reuse techniques are significant contributors to industrial water pollution. All industrial manufacturing operations and raw material production consume water extensively. Textile dyeing is considered the second largest water polluter globally, with 20% of the world’s wastewater generated by the fashion industry alone. This is majorly due to large amounts of water used for textile manufacturing that is later discarded as wastewater without efficient treatment.

Pakistan’s textile industry contributes 8.5% to the GDP, more than 60% to the country’s exports, and employs about 45% of the country’s labor force. However, the adoption of sustainable business practices, and not just the mounting export figures can make the sector highly competitive in the global export market. Simply put, firms that are incorporating environmental, social, and governance (ESG) components of sustainability in their business models are the only successful future businesses, as they devise stringent policies to reduce pollution and protect ecosystems.

PATHWAYS OF INFLUENCE

Currently, the country’s textile sector is snowed under by extrinsic challenges including the government’s withdrawal of RCETs, as well as intrinsic issues of environmental and social sustainability. Major environmental concerns including rising GHG emissions, unsustainable water consumption, and discharge of hazardous chemical effluents, that require the right financial allocations and technological advancements for control, are connected to the industry’s functioning. However, despite massive financial burdens resulting from the current government policies and climate change, environmental consciousness is not an overlooked philosophy anymore by the sector due to multiple factors of influence.

International conventions on environment and climate change are among the foremost influencers, that have shaped the sector’s policies towards decarbonization and water footprint reduction. Water stewardship, in particular, has emerged as a leading sustainability best practice, encouraged by these global treaties. These protocols, also mandated by the EU’s GSP+, have positively integrated the CSR concept into the industry’s manufacturing, whereby companies have willingly committed to ensure sustainable water consumption and wastewater treatment on their sites. The international market and green preferences of the buyers are other known drivers of water stewardship, as they help gain competitive status and credibility in the export market. Textile firms are complying with these preferences through acquiring certification schemes, the absence of which triggers the boycott of products, ultimately harming the competitive status compared to other regional export leaders such as Bangladesh.

Growing awareness among the industry stakeholders regarding the benefits of water conservation has also scaled up the progress on water stewardship. Research shows that water conservation measures in the industry not only reduce production costs but also energy consumption, wastewater treatment cost, and pollutant load. It also ensures water availability for future use. Furthermore, the thoughtfulness to the fact that climate change as well as continuous unsustainable water withdrawal are exhausting the country’s natural water resources thus causing water insecurity, has also been central in upscaling water management in the sector.

INDUSTRY EXAMPLES

Our textile industry is actively engaged in meeting the highest standards of environmental performance for water stewardship.

Interloop, for instance, has adopted nano-bubble technology to reduce water consumption by 95%, chemicals usage by 71%, and energy consumption by 50%. It is promoting sustainable textile bleaching through the fill and drain systems for multiple processing cycles. The company has partnered with WWF for Alliance for Water Stewardship (AWS) certification to ensure behavioral shift and community-level impact towards water stewardship. Major activities include water catchment study, water audit for quality, quantity, and sanitation practices, stakeholder engagement, and community investment for water conservation. Interloop has planned to scale up 60% water recycling capacity and has dedicated wastewater treatment and recycling plants to make textile wet processes less environmentally harmful.

Similarly, responsible water usage is a foundation of Sarena Textile’s commitment to sustainable textile manufacturing. The company has installed a biological wastewater treatment plant with a capacity to treat 3840 m3/day and meets ZDHC, PEQS, and IPE requirements. The water-saving initiatives taken include a condensate recovery system, shark washing on washing machines, and water reuse at all major steps. Sarena’s average daily water saving is around 35% of its total water consumption, which is 1880 cubic meters.

Water management is one of the critical sustainability challenges mapped by US Apparel and Textiles. It has pledged to conserve 50% of water via reduce, reuse, and recycle techniques by deploying water-efficient technologies. Water treatment plants are to be employed to recycle 15% of hazardous wastewater. The firm aims to reduce water withdrawal stress from freshwater sources by harvesting rainwater for its functions. 117 finishes have been converted to waterless recipes saving 1,40,000 m3 of water in one year. Figure 1 presents the firm’s progress on sustainable water management. Likewise, the sustainability framework of Yunus Textiles is based on the triple-bottom-line strategy to serve people, the planet, and profit. The company has installed one of Pakistan’s largest effluent treatment plants to recycle and reuse water and recycle efficiency is maintained at up to 90% with an extensive vision towards Zero Liquid Discharge.

Our leading textile industries offer many other similar examples of water stewardship to make sure their exports give smooth business figures while also complying with global sustainability requirements. These practices must be adopted far widely to have a sustainable and meaningful impact. The prevailing challenge, however, is to integrate the rest of the small and medium enterprises in the collective efforts to achieve sustainable water management.

Figure 1: Water conservation progress of US Apparel and Textiles

CURRENT CHALLENGES AND THE WAY FORWARD

ILO’s International Labour and Environmental Standards (ILES) program aims to promote sustainable and inclusive growth by supporting the economic integration of Pakistan’s SMEs into the regional and global economy. Under this project, WWF aims to implement Alliance for Water Stewardship (AWS) standards in the leather and textile sector SMEs. This inclusive capacity building will enrich the export functions and compliance of the SME sector to become eligible also to join ILO’s Better Work Program that supports the textile sector to boost its competitiveness via the fulfillment of labor rights for workers.

Although international programs on environment and social sustainability are integrating textile SMEs into their agenda, these enterprises have been confronting several issues hindering their adherence to national and international regulations on environmental sustainability. Lack of financial resources and government incentives, technology constraints, and non-existent capacity building of the workers are some of the critical challenges. The current regulations demand water conservation at each step of manufacturing which is unaffordable for the SMEs thus making their functioning environmentally harmful.

Further, there is a lack of stringent monitoring of industrial water consumption and effluent pollution by the relevant government authorities. According to UNCTAD, land, and marine ecotoxicities are major environmental concerns associated with Pakistan’s textile industry. Also, research shows that the industry consumes more water than required. This indicates that the already installed effluent treatment plants are not effectively functional, thus causing land and water pollution downstream. Besides, the above-mentioned best practices of water stewardship are not being widely adopted by the industry. As growing water scarcity due to glacial retreat resulting from climate change, unsustainable water management and withdrawal, and lack of infrastructure for water storage, is an emerging existential threat for Pakistan, the unmonitored and unregulated industrial water consumption and pollution can worsen the current scenario.

In order to tackle the enduring challenges, the emerging water stewards of the textile industry must come forward to support the SME sector build its capacity to comply with the mounting global environmental standards. This can be in the form of knowledge and technology transfer as well as incentives. While aiming to extend their export market, there is a need for the SME sector to establish sustainability departments to monitor their sustainability progress but also to participate and take full advantage of the national and international funding and capacity-building programs. Moreover, the unsustainable water withdrawal patterns and hazardous effluent discharge from the industry must be monitored in order to make sure the export-oriented sectors are sustainable in a true manner. The reduce, recycle, and reuse techniques must be made obligatory to cut down the industry’s cost and waste thus minimizing the burden on the country’s natural resources.

Industrial water withdrawal and effluent discharge must be regulated and monitored by a regulatory agency, that is formulated inclusively with appropriate representatives from all sectors of the economy. In order for this agency to be effective, it must be given fine lines of power to impose penalties for any non-compliances with pollution directives by the industry. keeping in view the abysmal state of water bodies in the country, the regulatory agency must have the authority to impose pollution taxes on the polluters to enhance quality of water channels. This appears to be the only viable way forward to improve quality of our waterbodies, reduce unsustainable patterns of industrial water consumption and meet the increasingly stringent compliance requirements of our textile imports into the western economies.

Shahid Sattar and Noreen Akhtar

Energy sector is the largest GHG producer in Pakistan. It is estimated that the energy demand in the country will reach 108 – 126 million tons of oil equivalent (TOE) by 2030. With the growing unsustainable management of energy demand, Pakistan’s continuous reliance on imported fossil fuels and outdated coal technology has affected the country’s energy security and its compliance to the global requirements on energy efficiency and decarbonization. However, the government’s recent tilt towards enhancing the country’s capacity for renewable energy (RE) consumption presents a major legislative and policy advancement.

The updated National Climate Change Policy, 2021 puts a major emphasis on achieving climate change mitigation goals via energy efficiency and reducing carbon emissions. It aims to seek technological breakthroughs to harness the country’s potential of renewable energy and declares that 60% of all energy produced in the country by 2030 will be clean through renewable resources and Pakistan will no longer pursue imported coal power plants. Further, Pakistan’s updated Nationally Determined Contributions (NDCs), 2021 support government’s energy-related policy interventions and have determined integration of renewable energy sources in all major sectors a high priority area. The updated Renewable Energy Policy 2019 focusses more on green energy and aims to reduce GHG emissions using Kyoto Protocol.

Pakistan has tremendous potential to fulfill its growing energy demand from the renewables including solar, wind, hydro, geothermal and biomass, as these resources are greatly available in the country. Solar, for instance, is the most attractive alternate energy solution which has received considerable attention recently. Pakistan’s southwest region receives the highest irradiation. “The annual global horizontal irradiance in the Himalayas and Karakorum is 2300 kWh/m2, which is the greatest of any other region on Earth”. Wind energy sources have a potential to generate 43,000 MW electricity. Moreover, the International Renewable Energy Agency (IRENA) estimates that Pakistan’s hydropower sector has a potential of 60GW and it remains a cheapest source of power in the country. Biomass is estimated to generate 50,000 Gwh/ year in the country. Finally, geothermal energy resources are present in all the provinces, which can be used for power generation, heating and cooling of buildings and supply of hot water.

If Pakistan brings into play this untapped potential in all the major sectors by implementing the exemplary policy reforms in spirit and expanding RE, a massive decoupling of growth from conventional energy resources such as fossil fuels can add to the existing efforts on climate resilience. RE expansion will make electricity cheaper, enhance energy security and Pakistan can save up to $5 billion over the next 20 years, as per World Bank’s report.

Pakistan’s textile industry is one major sector that can benefit massively from the available RE resources in the country while supplying eco-friendly power.

RE AND TEXTILE SECTOR

Textile industry’s manufacturing processes are energy intensive. 10% of global GHG emissions are accounted for by clothing and footwear production. Raw material production, harvesting, dyeing, and dumping of used textiles, all major steps involved in textile manufacturing and their discarding emit GHGs into the atmosphere. For Pakistan’s textile industry, transitioning to RE solutions is not only cost and resource effective, but also enhances the sector’s overall compliance to the global standards on energy efficiency and industrial decarbonization, such as those imposed by the European Green Deal. Government’s support, growing renewable energy market and technological advancement are among the already existing opportunities for the industry to expand its business through renewables. Government of Pakistan has supported RE development and encourages private sector involvement for projects related to carbon emissions reduction. The textile industry can become a leader in this, if it prudently plans right financial allocations to set up independent sustainable electrification. Also, RE technologies are becoming relatively affordable options for powering the industry that can enhance cost effectiveness of the manufacturing processes.

The industry’s current progress on offsetting emissions indicates that, it has shown promising commitment to achieve net zero by adopting a green supply chain philosophy. The Net Zero Pakistan initiative, for instance, is Pakistan’s largest net zero coalition and is the only second country-wide program, under Global Race to Zero, after Japan. It is a collaborative effort between non-government organizations, leading textile companies, public institutions and sector experts. The textile companies, in this coalition, commit to set science-based net zero targets, measure and disclose their GHG emissions, decarbonize their value chains and advocate for climate action. Keeping in view the extrinsic pressure and internal needs for energy efficiency, the initiative must facilitate decarbonization by increasing renewable energy mix and incorporating energy saving technologies.

Major textile companies are supporting climate action through clean energy initiatives including solarisation projects and technology installation such as waste heat recovery boilers and converting boilers to biomass based fuels. International certifications on energy conservation such as LEED are acquired and water stewardship through sustainable bleaching techniques, zero wastewater discharge and recycling is achieved. Performance comparison of one of the companies ‘Sarena Textile Industries’ is given in figure 1.

The analysis of the current scenario of industrial energy efficiency reveals that the share of alternate energy sources such as renewable electricity and biomass in the industry is limited. Technology such as motors and boilers are inefficient and innovative ideas to save energy are exercised inadequately. Thus, the major decarbonization and energy conservation pathway for the industry is to transition to renewable energy technologies including solar PV, concentrated solar thermal collectors and wind turbines. Circular economy options including recover, recycle and re-use must be compounded by rethinking process improvement options and innovative technologies via right financial allocations and research breakthroughs.

Figure 1: Performance comparison of Sarena Textile Industries

The industry can acquire Renewable Energy Certificate (REC) upon adoption of the RE technology. RECs are issued when one megawatt-hour (MWh) of electricity is generated and delivered to the electricity grid from a renewable energy resource. Pakistan has been approved for International-REC (I-REC) for electricity issuance. The I-REC for electricity issuer in Pakistan is the Pakistan Environment Trust (PET). RECs are tradable units and can be sold through exchanges or bilateral trades and can be a significant source of additional revenue generation.

LEGISLATIVE CHALLENGES AND THE WAY FORWARD

The industry is currently experiencing a number of barriers obstructing its transition to RE resources, that demand an immediate response from the government.

The limit of the present net-metering scheme for solar power systems of the industry is 1MW, which needs to be extended to 5MW – “especially when the demand of the large-scale manufacturing industry is between 1.5 to 5MW. This increase has a potential to add 5000MW of solar energy at no upfront investment from the GoP to the energy mix of the country. Furthermore, this will enable the EOUs to become competitive in the international market (with lower energy costs) and increase the share of renewables in the total energy mix as committed in the updated NDCs 2021.”

Further, government has planned to launch solarisation projects of around 14000MW which will not only “reduce the import bill of costly fuel but also help generate low-cost and environment-friendly electricity.” These solar systems will be provided at reduced prices and will be given tax incentives. However, in order to support the industry to enhance its energy efficiency in a sustainable and an independent manner, it should be permitted to install its own solar power structures with the extension of net-metering scheme for solar from 1MW to 5MW.

The wheeling case indicates that Pakistan needs to move towards free market models with multiple buyers and sellers to revive power sector but also, to make it transparent. The wheeling regulations must incorporate wheeling of renewable energy and the associated wheeling cost must be reduced for any industrial off-site installation of renewable power infrastructure.

These legislative burdens coupled with the withdrawal of regionally competitive energy tariffs are pushing the industry into a zone of financial dismay where it is operating at less capacity utilization due to working capital issues, losing competitiveness in the international market and raw material issues. This will cause long-lasting harm to the industry’s current compliance and sustainability efforts and adoption of RE technology, as the present focus has shifted towards another day survival by mitigating the impacts of withdrawal of energy tariffs.

In conclusion, Government of Pakistan must address the existing limitations of net-metering scheme for solar, wheeling charges and continue providing regionally competitive energy tariffs for the industry to regain sustainability progress and transition to RE. This will support the industry in utilizing the country’s current RE potential to the maximum, reduce reliance on fossil fuels and enhance competitiveness in the global export market. Otherwise, the government’s recent NCCP and NDCs that put extreme focus on RE will be restricted to paper without implementation in spirit.

REFERENCES

https://www.maxpower.com.pk/news/renewable-energy-in-pakistan-opportunities-and-challenges/

https://tribune.com.pk/story/2394481/pakistan-a-major-fossil-fuel-importer

https://www.worldbank.org/en/news/feature/2020/11/09/a-renewable-energy-future-for-pakistans-power-system

https://energsustainsoc.biomedcentral.com/articles/10.1186/s13705-016-0082-z

https://www.s-ge.com/en/article/export-knowhow/20213-c5-pakistan-renewable-energy

https://online.fliphtml5.com/wokmg/yimk/#p=20

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9402327/

https://www.irecstandard.org/pakistan/

Shahid Sattar and Amna Urooj

The persistent deviations and inefficiencies in Pakistan’s energy sector have generated extremely negative impacts on both end-users and enterprises, stalling the country’s pursuit of sustained economic development. The textile industry, which constitutes a significant proportion of exports (60%), manufacturing sector employment (40%) and banking credit (40%), is acutely impacted by the high energy tariffs and circular debt crisis, requiring prompt attention to ensure stability in exports and employment.

Source: APTMA

The textile sector is grappling with a severe lack of gas and RLNG, due to rapidly declining gas reserves and escalating limited import of RLNG due to high prices caused by the Ukraine situation. This shortage is unlikely to improve in the near future. As a result, the industry is turning more to electricity from the grid, despite its various challenges, such as lack of steam and dependability. For the textile sector to remain competitive, it is crucial that the cost of electricity in the region remains reasonable. The government had pledged a Regionally Competitive Energy Tariff (RCET) of Rs 19.99/kWh for EOUs until June 2023, but due to the ongoing economic turmoil and IMF negotiations, this RCET, has currently been cancelled starting March 2023.

Ironically, an analysis of the cost of service for B3 & B4 industry and that too as per data provided by CPPA/NEPRA, reveals that in actual the provision of a 9 cents/kWh taris involves no subsidy as can be seen below for FY22. According to CPPA/NEPRA calculations, the cost of electricity is 8.1 cents and excluding cross-subsidies plus transmission and distribution cost makes a total of 9.3 US cents/kWh.

Cost of Service for B3 & B4 Industry as per CPPA/NEPRA

It is also worth mentioning that the Small and Medium Enterprise (SME) sector, who do not have alternate energy sources, can face severe economic consequences due to withdrawal of regionally uncompetitive tariffs. The intense competition in the global export market and the crucial requirement for Pakistan to uphold or potentially increase its exports calls for caution in the context of elevated electricity charges. The SME sector is already at a disadvantage due to the absence of subsidized credit, difficulties in accessing import for re-export plans, and the incidence of multiple tax duplications. The imposition of higher electricity tariffs is likely to result in cost escalation, rendering the SMEs incapable of remaining competitive in the marketplace both for exports or local consumption as imports become relatively cheaper.

On the other hand, the non-implementation of the Textile Policy 2025 implies that the business environment in Pakistan is not conducive to the growth of both existing and new investors. Consequently, textile enterprises in Pakistan have become regionally uncompetitive in comparison to their counterparts in South Asian countries such as India and Bangladesh, resulting in an adverse outcome of the aforementioned factors. The economic losses arising from the aforementioned factors, both current and future, are significant and alarming.

Energy Tariff’s Across the Region

Source: APTMA

The issue at hand is: despite the potential for much higher exports by the textile industry through favorable policies and tariffs, the government’s inaction on this front remains inexplicable. It may be that policymakers and decision-makers are not fully cognizant of the benefits associated with such decisions or lack a precise understanding of the actions necessary to save the sector from collapse. Alternatively, it is possible that the industry is not adequately communicating and emphasizing these concerns. Nonetheless, APTMAs consistent efforts in promoting RCET have been instrumental in the past, creating a positive impact.

As a matter of fact, reliance on grid electricity at over Rs. 40/kWh makes the Punjab industry uncompetitive in international & local markets thereby, shifting the available orders to cheaper alternatives internationally as well as within Pakistan. This will consequently further break the already broken economic position of the country via unemployment, lower exports and bankruptcy. And now that it is evident that the withdrawal of RCET OF Rs 19.99/kWh and a gas tariff of $9/MMBtu for gas/RLNG in Punjab will result in closure of Punjab based textiles. Immediate intervention to correct injustice is requested from the policy makers as Pakistan can not afford further deterioration in the balance of payments which may amount to a loss of $10 Billion exports per Annum.

The revocation of RCET will render more than 50% of Pakistan’s installed capacity in the Punjab-based industry non-operational. Meanwhile, the Sindh-based industry will maximize gas usage, which costs 4 cents or Rs.11 per kWh, with added steam and hot water benefits. The cost of self-generation for Punjab-based industries using gas/RLNG will be 11.5 cents or Rs.31 per kWh. Additionally, grid electricity is both uncompetitive and unreliable, reducing effective production capacity by over 25% due to substandard supply. Furthermore, gas supply to the export sector in Punjab is severely restricted, meeting only 25% of the demand and only available to selected units when it is available at all.

Energy Differences Across Punjab and Sindh

Source: APTMA

This dolorous situation implies that the $5 Billion investment over the last three years that resulted in increased exports by a massive 55% in two years i.e., from $12.5 Billion in 2020 to $19.5 Billion in FY22 through the provision of RCET and Temporary Economic Refinance Facility (TERF) will all be lost.

During periods when the government provided regionally competitive energy tariffs, the Export Oriented Industries (EOIs) demonstrated the crucial role of these tariffs. This was evidenced by an immediate increase in production, reaching full production capacity, creating new job opportunities, attracting new investments, and leading to the full operation of all mills. It is unquestionably a sustainable path to economic growth to enhance trade competitiveness, as it is not subject to any liability, unlike aid. Additionally, tying hopes of economic growth to remittances is unreliable, as the long-term trajectory of remittances is unpredictable. Countries that have achieved economic growth and sustainable development prioritize export-led growth as their top agenda.

Another important aspect to consider is that when the Government of Pakistan borrows from the international bond, it typically does so on an interest rate of 7% – 8%. While foreign loans can provide much-needed financial resources to the government, their cost in the form of interest payments and debt servicing is a drain on the country’s resources, limiting the government’s ability to spend on critical areas such as healthcare, education, and export-led growth.

Cost of Regionally Competitive Energy Tariffs (RCET) to Textile Sector

Source: APTMA

In fact, depending on export-led growth is way better than any reliance on foreign loans and aids. When compared technically; the total cost of RCET as a percentage of textile exports from FY19 – FY22 was just 2.67%. Growth led export policies such as RCET can lead to increased exports and higher revenues for the industry against foreign loans with an interest rate of 7% – 8%. The difference in interest rate of external borrowings vs cost of RCET has significant implications for the government’s finances, saving billions of rupees as the government doesn’t have to repay for the later one.

On the other hand, one alternative solution to insulate SMEs from high energy tariffs, without violating any World Bank or International Monetary Fund conditionalities for subsidies, would be establishing an RLNG-powered or coal fired generation facility, aimed at catering to the energy demands of the textile industry. As a complementary initiative, exploration of the feasibility of setting up off-grid solar and hydro power plants in KPK to reduce operational expenses is also possible. However, this too has its own set of problems such as wheeling charges, stranded cost and cross-subsidy, issues of electric supply from grid, notice period, and solar net-metering CAP.

One of the challenges in establishing a power plant dedicated to serving Export Oriented Units (EOUs) in the Textile industry is related to the definition of open access/wheeling charges. With the discontinuation of subsidies, the industry must use the Competitive Trading Bilateral Contract Market (CTBCM) to remain competitive. In this context, the two disputed components out of the five components of the wheeling tariff, namely cross-subsidy and stranded cost, must be waived for EOUs. In order to remain competitive in the international market, the wheeling charge must exclude cross-subsidies and standard. Additionally, the current power wheeling system is inadequate for the CTBCM regime, and the supply of electricity is compromised as it does not conform to the grid and distribution codes established by the Government of Pakistan.

Pakistani policymakers need to prioritize sustained export-led growth to promote economic independence and overcome debt accumulated from loans and relief packages. A strong export base provides a self-sufficient and highly beneficial approach to strengthen the economy, free of any conditionalities. The ultimate aim is to achieve economic and political independence in Pakistan, free from reliance on goodwill or aid.

Related Articles:

1. Ladder and the snake – https://www.brecorder.com/news/4694689/ladder-and-the-snake-20190522477837
2. The snake has truly bitten – https://www.brecorder.com/news/4704478/the-snake-has-truly-bitten-20190702493518

Mr. Asif Inam (Chairman All Pakistan Textile Mills Association)

Bangladesh is a large contributor to the global textile industry, with the RMG sector accounting for 84 percent of Bangladesh’s exports. This comes on the back of the sector’s rapid growth and modernization over the past decade—as well as the strides it has made in improving conditions for the country’s approximately four million garment workers. Bangladesh has surprised the market by consistently showing profits.

1257.6 miles away, Pakistan’s industrial sector is fighting to live another day. Pakistan’s export during Apr-Jun, 2022 amounted to $ 8,432.09 million showing an increase of 2.52% over Jan-Mar, 2022, and by 27.43% over Apr-Jun, 2021. The textile export data for the last five years showed that volumetric textile exports are the primary driver with a double-digit increase in value-added items. Exports during July-Jun, 2022 stood at $ 31,782.09 million. Pakistan while showing potential for increased export till June- July 2022, later took a nose dive for the worse. The country’s exports of merchandise entered a negative growth in July. The export proceeds fell 5.17 percent to $2.21 billion in the first month of the current fiscal year from $2.34bn in the corresponding month last year according to data from Pakistan Bureau of Statistics. On a month-on-month basis, the export proceeds tumbled by 23.95pc indicating a downward trend in the export sector and just as the increase before the current drop in exports is entirely volumetric.

 

 

The textile sector last year exported goods worth $19.3 billion and has further expanded capacity through an investment of $5 billion to increase exports to $25 billion. The expectation and goal were to increase textile exports to at least $24 billion this year however this could not materialize. Pakistan’s exports have started declining and will clock in at below $1 billion per month for the rest of the year.

The textile and clothing industry has grown to be the single largest manufacturing sector of Pakistan, employing almost over 385 of the manufacturing labor force. The textile and clothing industry is the backbone of Pakistan’s economy however the sector is confronted with numerous challenges. Worsening international economic situation primarily caused by the Ukraine crisis combined with floods in Pakistan has negatively impacted the already inefficient supply chains of the country. Flooding in dozens of districts of Pakistan has destroyed a wide swath of agricultural land. While the industry requires 14 million bales, the country could only produce 5 million bales of cotton domestically. To meet this gap cotton needs to be imported however the forex issues in the economy have curtailed imports of cotton and other essential inputs for exports. The issue of raw material clearance from the ports remains unresolved owing to unavailability of forex and therefore mills are currently unable to obtain cash against documentation and are closing down owing to the shortage of raw materials.

The cost of importing cotton has also increased by 20% due to demurrage/detention and delays while the importers face the loss and failure to book orders due to uncertain and delayed turnaround time for export orders. Manufacturers continuously find their hands tied due to liquidity constraints owing to 60 % devaluation of currency with no corresponding increase in working capital facilities. Funds bound as a consequence of 17% sales tax and devaluation on all inputs. Lags in the system committed to pay refunds and accumulation of “Deferred Sales Tax” which has not been refunded for the last 3 years have completely restricted the cash flows for new projects and expansions. As a result, the export oriented units are under immense pressure as they cannot generate funds to service debt. This may lead to massive defaults further curtailment of capacity and in all likelihood a banking crises.

New connections for RLNG/ Gas are not being extended the competitive tariffs effectively rendering the new projects /expansion uncompetitive. Electric supply to mills is erratic and sub-standard including maintenance shutdowns of 5-6 days/months reducing effective capacity by 25% of the mills running on electricity. Over the past 2 years the textile sector has invested $5 billion in setting up new factories, some of these are now complete and others are in process however some of the machinery of new plants/ expansions is still stuck at ports, L/Cs are delayed for spare parts, and electricity and gas not being provided to these new units, instead of increasing exports by $5 billion per annum is likely to lead to massive banking defaults, complete loss of investor confidence in future  for any investment in Pakistan and many other negative consequences.

However, all is not lost. Clearing all imports of export oriented sectors which have arrived at ports whether against L/Cs or cash against documents can be the first step towards recovery. Prioritizing or exempting export oriented sectors from import controls allowing L/c for raw material, machinery, spare parts and other items to restore industry supply line would be a big help for the sector. In addition, refunding all Demurrage and Detention Charges incurred by EOU sector to maintain competitive costs of exports. Maintaining a 24 hour help desk to monitor and resolve exporters issues. Restoring SRO 1125, zero rating for the textile value chain while collecting sales tax on domestic sales at point of sale. Immediate refund of all deferred sales tax, tuff and other dues and Extension in submission date of duty drawback claims for FY21 are all steps in the right direction. A new export sector working capital lending facility may be established catering to EOU sectors at subsidized rates to tide over the current crises and LTFF be provided where L/C’s already opened and loans approved by banks.

Being an energy insecure country and keeping up with ever rising demand Pakistan’s only solution to energy crises is efficient allocation of scarce resource we have. It is necessary to accord first priority to export industry on Gas/RLNG and electricity supply and allow competitive tariffs to all new projects and expansions as well as industrial estates. A task force with industry representatives may be made with the purpose of improving supply of grid electricity and all discos should schedule maintenance shutdowns after consultation with impacted industry.

Pakistan also needs to diversify and upgrade its product offerings. However, the most important lesson that we can learn from Bangladesh is to learn from experiences and mistakes and make policies and mitigating strategies to overcome the challenges and flaws of the system. For instance, Bangladesh’s largest challenges were disasters, deaths, and safety issues in the textile industry. Tragedies have received worldwide coverage. Notably the Dhaka fire and collapse of Rana Plaza (2013). Bangladesh learned from its mistakes and started taking responsibility for its workers and the reforms which were once promised came into actual practice. Today, Bangladesh’s RMG sector is a frontrunner in transparency concerning factory safety and value-chain responsibility, thanks to initiatives launched in the aftermath of disasters (including the Accord on Fire and Building Safety in Bangladesh, the Alliance for Bangladesh Worker Safety, and the RMG Sustainability Council). These measures led to the closure of hundreds of unsafe, bottom-tier plants and the scaling up of remediation activities in many others.

We need to develop an action plan not only to solve our immediate problems but also to ensure long-term solutions to such problems. Policies should be in place like a “24-hour helpline” for manufacturers who are importers and require immediate assistance in case of any supply chain disruption.  Towards this end the government is setting up a national commission center which will work in a dedicated manner to address sustainability and compliance issues. We need solutions but not just temporary ones, we need solutions that are sustainable and beneficial for us in long run. With the right policy tools and support from the government, the textile sector will be once again on the right track as the sector has proved its worth time and time again.

Dr. Gohar Ejaz

Pakistan’s economy has been facing a number of challenges in recent years, including low growth, high inflation, large fiscal and current account deficits, and declining foreign exchange reserves. Despite various efforts to spur economic growth, the country’s GDP growth rate has remained relatively low, averaging around 3-4% in recent years.

In the last 5 years, Pakistan has received a total of $32 billion as loans from various sources including China, Saudi Arabia, Abu Dhabi, World Bank, and the Asian Development Bank. In contrast, Pakistan has while earned $140 billion from exports. Expats have contributed $140 billion as worker’s remittances to the country during the same period. Given these inflow volumes and the eighty-twenty rule, Pakistan should focus on these two sectors aligned with relative weights of the expected outcome.

Composition of Foreign Economic Assistance, Remittances and Textile Exports (USD Million)

* Of which, 2500 Million USD is part of cyclical one time facility by ADB and 500 Million from AIIB Special Fund.

**State Administration of Foreign Exchange (SAFE) Authority, China.

***Saudi Fund for Development (SFD) Time Deposits.

Both exports and worker’s remittances are important sources of foreign currency for Pakistan and play a crucial role in its balance of payments, contributing 80% of total forex revenues. However, the relative economic importance of these two sources is significantly different where exports contribute directly to GDP growth, employment generation and provide the only sustainable long-term solution. Worker’s remittances on the other hand provide limited and indirect support to the GDP, as well as employment and are not considered as preferential source of forex.

Pakistan’s exports have seen an upward trend especially during FY20-FY22 where textile exports grew by a phenomenal 55% in just two years. Worker’s remittances also posted a growth of 50% in these two years but are dependent on the world economic conditions especially the state of the economies from which they originate and hence not considered stable or sustainable in the long run.

However, the state of remittances as well as exports is now depicting an alarming future.  During H1 of the current fiscal year, remittances from 10 European Union countries (including Italy, Spain, Germany, France and Greece) sent to Pakistan showed negative growth. The number of remittances from EU member countries decreased from $1.750 billion in the same period of the previous fiscal year to $1.544 billion, representing a decrease of 11.77%.

Remittance Inflow (Jun’17 – Dec’22) in USD Million

Source: State Bank of Pakistan

With continued socioeconomic turbulence, Pakistan has always been relying on Foreign Economic Assistance (FEA) in various forms. FEA refers to government aid aimed at enhancing the economic growth and well-being of developing nations. This aid can take the form of concessional loans, grants, and technical support, and may be provided by both bilateral sources and multilateral organizations such as the World Bank, Asian Development Bank (ADB), Islamic Development Bank (IsDB), Asian Infrastructure Investment Bank (AIIB), or United Nations (UN).

Pakistan has had a history of being heavily dependent on FEA since its inception, which is not an ideal situation for a country’s long-term economic growth and development. There are several reasons for this:

First, reliance on FEA often leads to a lack of fiscal discipline and weak revenue collection efforts. Governments tend to rely on external aid to finance their spending, which can lead to large fiscal deficits and a buildup of government debt over time.

Second, FEA can create a culture of dependence, where the recipient country becomes reliant on external aid for its development and growth. This can lead to a lack of incentives for domestic reforms and a reduction in the country’s capacity to generate its own resources and finance its own development.

Third, FEA can distort the local economy by providing resources to sectors or projects that may not be aligned with the country’s domestic priorities or economic strengths. This can create a misallocation of resources and reduce the overall efficiency of the economy.

Fourth, FEA can also have negative impacts on the country’s currency, as large inflows of foreign aid can lead to an appreciation of the local currency and reduce the competitiveness of the country’s exports.

Pakistan attracted more than $25 billion in the real estate sector in 2021. According to a research study, 25-30% of remittances went into the real estate sector while 21-22% from the Roshan Digital Account were invested in the sector. Traditionally, expats have invested in real estate sector of Pakistan through remittances. A slowdown in the real estate sector necessarily negatively impacts investments and remittances. Remittances have decreased drastically over time, increased tax on property being the primary reason. Previously, even resident Pakistanis used to invest their savings in the real estate sector, however, exorbitant property tax rates have forced them to spend their savings in buying gold, and/or dollars, thus parking their funds in non-productive assets. In order to reverse the decline in worker’s remittances, overseas Pakistanis including non-resident persons may be exempt from advance tax payable under section 236K of the Income Tax Ordinance 2001 on the purchase of immovable properties in Pakistan. Expats may only be liable for Advance Tax on Sale/Transfer under section 236C of the Income Tax Ordinance 2001. This way remittances can be augmented to uplift Pakistan’s economic growth.

Focus on export growth necessarily involves promoting textiles as this sector contributes 62% of all exports. Pakistan’s textile industry, however, is facing a major crisis as it is rapidly losing credibility and competitiveness in the global market. The $19.3 billion industry, which relies heavily on exports, is experiencing a decline in global shipments. This situation is causing concern among its loyal international customers, who are becoming increasingly skeptical about the industry’s ability to meet deadlines and fulfill orders in a timely manner. The situation is further compounded by the shortage of dollars and basic raw materials, including cotton, dyes, and chemicals, which is causing many exporters to hesitate when booking new orders. As a result, the future of the industry looks uncertain, and unless measures are taken to address these challenges, the textile sector in Pakistan may continue to face a downward spiral.

Falling Textile Exports (USD Billion) – Targeted vs Expected in FY23

*Provisional-based on current trend.

Source: Author’s Own

Expanding our exports especially in the textile sector and removing all hurdles for remittance inflows should be of utmost importance. No doubt, we should also continue to maintain strong relationships with our current lending partners and work towards attracting investment from new sources. However, time has now come to consider that despite the current challenges faced by Pakistan’s textile industry, it is crucial that immediate steps are taken to re-invigorate the sector. Some of the critical steps are:

The cost of conducting business in the textile sector has become unmanageable due to the elimination of Zero-Rating (SRO 1125) and the implementation of a 17% GST on export-oriented industries. The high sales tax has led to an increase in working capital and interest rates, causing a surge in smuggling, fraudulent activities, and the import of second-hand clothing. To alleviate the situation and secure working capital, it is imperative to immediately reinstate Zero Rating for the entire textile sector through SRO 1125.

Address the looming liquidity crisis in the textile sector of Pakistan, caused by factors such as non-release of funds, high taxes, increased competition, and high energy costs. It is imperative to release all held-up funds such as deferred sales tax, TUF etc. as well as enhance working capital limits in accordance with rupee devaluation and increasing textile exports.

Moreover, in order to ease the liquidity crisis and avoid defaults, moratorium on capital repayment from July 1st, 2022 to June 30th, 2023 may be implemented during the period of this financial hardship to allow the industry time to stabilize and recover.

The current allocation of gas resources in the economy is unsustainable. To secure a sustainable gas supply and improve competitiveness, the priority of gas distribution to various sectors needs to be reevaluated. Priority should be given to productive sectors such as textile industry, with a focus on export-based industries over the domestic sector. This strategy would lead to increased exports, improved competitiveness, job creation, and a positive impact throughout the value chain. The current pricing disparities and promotion of non-productive use of limited resources in the gas sector should be addressed through reforms, such as the weighted average cost of gas (WACOG) and pricing that accurately reflects the economic value added through gas.

The maintenance schedule for industrial feeders disrupts 25% of the industrial production of businesses and negatively impacts industrial production and exports. The country is already facing low exports and industrial production, making it crucial to improve the quality of electricity supply. To address these issues, it is imperative to redouble efforts to improve the quality of electricity supply and mitigate the negative impact on industrial production and exports. The long-standing issue of provision of RCET’s to the entire textile value chain needs to be also resolved expeditiously. Likewise, the assessment and announcement of reasonable open excess charges of power (Wheeling) should also be promoted while it is also important to enhance the limit of 1 MW on solar to 5 MW for industrial net metering for promotion of alternative energy supplies. Increasing the limit of 1MW will also contribute to the economy by receiving the burden of setting up new solar plants providing them Take or Pay contracts and killer sovereign guarantees. The government must reconsider its decision to sponsor new solar projects given this very real alternative.

The curtailment on import of raw materials and spare parts has resulted in an acute shortage of both. This has led to non-maintenance of machinery, breakdown and running out of raw material leading to closure of textile mills. Urgent corrective action is needed.

To achieve economic and political independence, Pakistan must focus on its textile industry to get out of the debt cycle it is stuck in. To do this, it must prioritize adding value to its exports, especially in the highly productive textile sector, through supporting higher value addition. Investment and improvement in production and export capacity is crucial and requires a long-term textile policy and access to energy resources. Increasing exports will also help create jobs and prevent social and economic unrest.

In conclusion, while FEA can provide valuable resources for a country’s development, a heavy reliance on it can lead to a number of negative consequences for a country’s economy. It is important for countries to strive for greater self-reliance and to implement reforms that increase their own resource generation and strengthen their domestic economies. It is clear that the need for credit reoccurs regularly and that it is time for the country to consider reforms to break the cycle of debt and aid. Domestic initiatives and a genuine process that focuses on ground realities are crucial for implementing true and meaningful change.

Shahid Sattar and Noreen Akhtar

With the rising global trends in fast fashion, the export of textile waste or unwanted clothes to destinations outside the EU has steadily increased. This export reached 1.4 million tonnes in 2021. Around 2.1 million tonnes of post-consumer clothing and home textiles are collected in the EU annually for recycling or sale on global reuse markets. This represents around 38% of textiles placed on the EU market. The remaining get discarded in the mixed waste streams.

Pakistan is one of the dumping grounds for post-consumer textile waste or unwanted clothes discarded every year from the EU. In 2021, used clothing worth 46 million USD export value was exported from the EU to Pakistan. Used clothes from the EU’s high streets end up reaching resale markets and also, dumping sites in the country. In the absence of efficient traceability criteria and waste hierarchy in both the EU and Pakistan, that distinguishes between textile waste and second-hand textile products, the textile waste streams falsely labeled as second-hand clothes are imported to Pakistan, a major portion of which adds to the already mounting ecosystem challenges in the country. The unregulated waste streams of used clothing and lack of their recycling not only cause more GHG emissions and unsustainable water consumption, as this leads to the manufacturing of more new clothing, but also cause an increase in the dumping of textile waste in landfills.

EU is now giving utmost consideration to sustainability, promoting textile circularity, and regulating the export of textile waste streams to other nations. EU’s legislative reforms will change the game for Pakistan’s textile and secondhand clothing industry, which will not only significantly minimize the dumping of textile waste but also support the alignment of the current textile business models with the textile circularity business models.

CURRENT SCENARIO

Affordability and business through resale platforms are the massive forces behind large imports of used clothing from the EU to Pakistan. With the growing economic crisis, consumers have become mindful of their expenses and their preference for secondhand clothing, which is believed to have superior quality, has grown. Pakistan has a huge textile resale market, that resales imported used clothes, some of which are recycled while most are sold directly. This expansion of the secondhand clothing market in the country is not only a pushback against the mounting fast-fashion systems, but also poses less environmental consequences compared to the fashion industry and manufacturing of new textiles. For instance, recycling and reshaping of secondhand clothes emit less GHGs and cause less water pollution compared to the emissions and pollution from the new clothing production. However, the inflow of unregulated textile waste streams, falsely labeled as secondhand clothing, and unmonitored dumping of textile waste is a rising environmental concern and a challenge to promote textile circularity in Pakistan.

Pakistan has a huge potential to recycle and redesign used textiles. The current scenario indicates that imported used clothes are recycled by some industries, but the progress is not significant and major portions of these clothes enter resale markets and dumping sites directly. For instance, Karachi Export Processing Zone (KEPZ) is greatly benefiting from the used textile industry. It recycles and resales imported used clothes globally. Given the preference for the use of recycled material in new clothes, if industries are channeled into the market of recycled fashion, the recycling and redesigning of imported and locally generated used clothes can become a significant business market for Pakistan.

Recycled Polyester Staple Fiber (rPSF) is a highly suitable alternative for the industry to promote business through recycled fashion. The installment of recycling plants for the production of rPSF can uplift and green the industry’s business development, as it is the most preferred recycled content. rPSF has a huge business potential for brands and is now gaining high popularity, as it supports sustainability and compliance with the Global Recycling Standards (GRS) due to various desired physical properties including higher strength, low moisture absorbency, high elasticity, and comparatively easy production.

Textile circularity is now a matter of utmost attention for Pakistan’s textile industry. The industry is currently experiencing a massive transition from only manufacturing new textiles in the absence of strategies to ensure their circularity, to initiating circular business models, with a major focus on eco-designed textile products and recycling of used textiles. From knowledge dissemination to preparing skilled labor, implementing sustainable business models, and upscaling technology, textile companies are actively internalizing the EU’s guidelines and strategies to achieve zero waste targets. The progress, however, needs to be enhanced in the entire industry through coordination, the right financial allocations, and training.

THE NEXT BIG THING

EU Strategy for Sustainable and Circular Textiles will enormously transform the textile production patterns in Pakistan. Driving fast fashion out of fashion by reversing overconsumption and overproduction is a major target of the strategy. The industry will be obligated to adopt resource-efficient manufacturing processes and circular business models. This will not only promote the manufacturing of superior quality clothing, but also the recycling of secondhand clothes, thus causing a massive shift in the consumers’ preference towards recycled secondhand textile products.

With the motto of #ReFashionNow, the EU is underlining the introduction of eco-design requirements for textiles including quality, durability, longer use, repair, and reuse of textile products, that will ultimately decouple textile waste generation from the growth. The textile industry will experience mandatory requirements to give second life to used textiles, which will require major shifts in industrial functioning. This will require skilled labor, efficient policies for waste hierarchy and collection, and technical progress for recycling, and treatment of used clothes.

As the EU’s strategy for textile circularity is getting stricter, the information requirements to track the origin of all the textile products via traceability mechanisms are also becoming a norm in the EU’s green economy plan. Through its Digital Product Passport initiative, the EU is introducing mandatory information requirements on circularity and key environmental aspects of textiles. This indicates that traceability mechanisms will gradually become applicable to secondhand textile products, both in the EU and Pakistan. From the export of secondhand textiles to their recycling and reuse points, this mechanism will trace all the necessary information of the product’s lifecycle, thus reducing dumping of the used textiles to the minimum.

Digital Product Passport is a milestone initiative to deal with greenwashing, which misleads buyers by giving a false impression of the environmental footprint of the companies. The EU’s criteria to avoid greenwashing are getting immensely stringent, as the European Commission is seeking to define all greenwashing tactics (figure 1) and disseminate information about them. While this will give enormous recognition to the textile companies in Pakistan who are making efforts to green their products; it will also hold accountable, the poorly performing companies, for their high environmental footprint.

Figure 1: Main greenwashing tactics (Willis et al. 2023).

CONCLUSION

Aligning business growth with the EU’s strategy for textile circularity by focusing maximum on eco-designed new products and recycling used textiles is the next step towards a new normal for Pakistan’s textile industry, as the strategy will soon enter into force. This will not only regulate the EU’s post-consumer textile waste misleadingly labeled as secondhand textiles entering Pakistan, but will also reduce the dumping of textile waste to the minimum levels.

It is a must for Pakistan’s textile industry to adopt waste hierarchy protocols for the imported and internally generated post-consumer textile waste and strengthen the traceability mechanism to trace its recycling and end-of-life points. As the EU is a top textile export destination for Pakistan and is increasingly focusing on eco-design requirements for textiles, management of post-consumer textile waste will fulfill the EU’s mounting requirements for textile circularity. The industry will observe a transition, as manufacturing of superior quality textile products and recycling and exporting of used clothes will dominate the industrial functioning. This will reduce the environmental footprint of the industry to a significant level and promote green economy-based industrial development.

This will require the right financial allocations, upscaling of the current technology, skilled labor, and coordination among the relevant stakeholders for knowledge dissemination, the absence of which will affect the industry’s compliance performance compared to its regional competitors, ultimately distressing the export-based business market to the EU.

REFERENCES

European Commission. n.d.a EU Strategy for Sustainable and Circular Textiles. URL: https://environment.ec.europa.eu/publications/textiles-strategy_en

European Commission. n.d.b. Initiative on substantiating green claims. URL: https://ec.europa.eu/environment/eussd/smgp/initiative_on_green_claims.htm

Garson and Shaw. 2019. Exploring the benefits of the growing used textile recycling industry located in the Karachi Export Processing Zone in Pakistan. URL: https://www.garsonshaw.com/2019/11/exploring-the-benefits-of-the-growing-used-textile-recycling-industry-located-in-the-karachi-export-processing-zone-in-pakistan/

Generation Climate Europe. n.d. Digital Product Passport: What is it and what does it imply for the textile industry? URL: https://gceurope.org/digital-product-passport-what-is-it-and-what-does-it-imply-for-the-textile-industry/

Park, H. and Martinez, C.M.J. 2020. Secondhand clothing sales are booming – and may help solve the sustainability crisis in the fashion industry. URL: https://theconversation.com/secondhand-clothing-sales-are-booming-and-may-help-solve-the-sustainability-crisis-in-the-fashion-industry-148403

Smith, P. 2022. Main destinations for EU exports of used clothing 2021, by value. URL: https://www.statista.com/statistics/1099776/used-clothing-main-destinations-for-eu-exports-by-value/

Willis, J. et al. 2023. Greenwashing hydra. URL: https://planet-tracker.org/wp-content/uploads/2023/01/Greenwashing-Hydra-3.pdf