Is Pakistan Textile And Banking Industries Are Going To Be Default ?



According to a letter that APTMA sent to the State Bank of Pakistan on February 27, 2023, the Pakistan textile industries is on the verge of default due to its inability to service the loans it received under the TERF (Temporary Economic Refinance Facility) and LTFF (long-term facing facilities). This could also result in a possible banking crisis.

The State Bank of Pakistan (SBP) during the PTI time gave the TERF and LTFF offices to assist industrialists with introducing more material units for development in products in the country.

However, all of the sector’s new and expansion units have stopped working as a result of the ongoing LCs crisis, stuck-up consignments of imported cotton at the ports as a result of the dollar liquidity crunch, and the government’s withdrawal of RCET in accordance with IMF directives.

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This has put a lot of pressure on export-fueled businesses, which can’t even come up with the money to pay interest on loans. This could lead to Pakistan at  default risk also reduced capacity, and a possible banking crisis.

To avoid large-scale Non-Performing Loans (NPLs) and severe negative effects on the banking sector, the textile industry has asked the SBP to extend the debt moratorium under TERF and LTFF from June 1, 2023, to December 20, 2023.

Banks are not opening LCs or resigning cotton imports, the letter says, which had prompted the non-working of the material units.

“Now, devoted international customers are reluctant and asking Pakistani suppliers if they will be able to ship orders on time and meet deadlines, resulting in the loss of export orders. Textile mills have either shut down or will shut down very soon if decisive and urgent action is not take because the industry is running out of cotton stocks.

Additionally, the textile industry urged the SBP to grant the status “Must Open” to the opening of LCs for cotton imports.

According to the commerce ministry, representatives from the textile industry may hold an urgent meeting with senior SBP officials today (Monday).

Also Read : Textile Exports In Pakistan Plunge 28% in February

While As  authoritative sources in the ministry of commerce, the prime minister held meetings on export sector issues four times, but these meetings were unable to take place primarily due to the premier’s pressing commitments.

The APTMA also mentioned that the RCET (Regionally Competitive Energy Tariff) electricity rate of Rs19.90 per unit and the gas rate of 9 cents per MMBTU were the foundation of the business plan for both new industrial units and expansion of existing units.Read More….

However, as a result of the industry’s dependence on electricity at a rate of 40 cents per unit since RCET’s withdrawal, the textile industry is slowly but surely disappearing.

The textile industry is already operating at less than 50% capacity, according to alarming information in the letter. Since last summer, approximately 7 million workers in the textile industry and related industries have been laid off. If this industry is shut down, more layoffs will occur, resulting in significant unemployment of more than 10 million people and a further deterioration of the balance of payments in the form of exports worth at least $10 billion annually.

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In its letter, the textile industry also talked about how bad cotton production is in the country. It said that heavy rains and floods have caused cotton production to drop to 5 million bales, a record low this year. The cotton creation misfortune has been worth more than $2 billion.

Nearly 15 million bales are used by the textile industry, and the anticipate demand for the upcoming season suggests that approximately 10 million bales will need to be import. However, banks are not establishing LCs for cotton imports that’s simultaneously creating steps for Pakistan large scale industries toward default .