Pakup Tech

Pakistan’s Textile Sector in 2023 Survival, Sanctions, and Shifts

The year 2023 proved to be one of the most challenging years for Pakistan’s textile industry in decades. As the country's largest export-earning sector—contributing nearly 60% to total exports and employing over 40% of the industrial workforce—the textile sector found itself at the center of an economic storm marked by foreign exchange shortages, energy crises, and global demand contraction.

Powering Through the Energy Crisis

One of the most disruptive challenges for the textile industry in 2023 was the chronic energy shortage. With the rupee depreciating past PKR 300 per USD, energy imports became prohibitively expensive. This led to massive electricity load shedding and gas supply cuts, particularly in Punjab and Sindh, where a majority of the export-oriented mills operate.

The All-Pakistan Textile Mills Association (APTMA) reported that over 30% of production capacity was idle due to energy unavailability, and some mills shut down entirely in cities like Faisalabad and Multan. The industry pushed for subsidized gas and electricity tariffs, arguing that without them, Pakistan could not remain globally competitive.

Raw Material Woes and Import Restrictions

The textile sector’s dependence on imported raw materials like cotton, chemicals, and machinery parts made it particularly vulnerable to the import ban and LC opening restrictions imposed by the State Bank of Pakistan in an attempt to curb the balance of payments crisis.

Local cotton production also suffered due to climate anomalies and flooding in parts of Sindh and South Punjab. As a result, Pakistan imported more than 5 million bales during the fiscal year—at significantly inflated prices.

Global Headwinds and Export Contraction

Textile exports, which had touched $19.3 billion in FY22, fell by nearly 15% in FY23 (source: Pakistan Bureau of Statistics). The decline in global consumer demand, especially from key markets such as the U.S. and EU, compounded the domestic crisis.

Fashion brands and retailers globally were dealing with inventory pileups from the post-COVID demand surge, and Pakistan, despite offering competitive prices, saw orders diverted to more stable markets like Bangladesh and Vietnam.

Currency Depreciation: Mixed Impact

While a weak rupee technically made exports more competitive, the benefit was neutralized by the rising cost of inputs, freight, and energy. Exporters found themselves in a squeeze: unable to raise prices due to fierce global competition and unable to sustain margins due to high costs at home.

Furthermore, delayed sales tax refunds and DLTL (Duty Drawback of Local Taxes and Levies) reimbursements led to liquidity crunches, especially for SME exporters.

Green Compliance and ESG Pressures

Amid the chaos, international buyers increasingly demanded sustainability compliance and green certification from Pakistani mills. This created pressure on manufacturers to invest in wastewater treatment, renewable energy, and supply chain transparency—investments many found difficult to afford during a liquidity crisis.

Firms like Artistic Milliners, Nishat Mills, and Interloop continued leading on the ESG front, installing solar plants, adopting circular water systems, and adhering to OEKO-TEX and Better Cotton Initiative (BCI) standards. However, smaller mills lagged behind.

Government Response: Too Little, Too Late?

In May 2023, the government introduced a Textile Export Facilitation Package, including:

Zero-rating of energy tariffs for export sectors,

Fast-track GST refunds, and

Relaxation of import restrictions for raw materials.

However, industry leaders criticized the measures as reactive and temporary, arguing for a 5-year textile policy that would ensure policy continuity and encourage investment in value addition and technology upgradation.

Digital Transformation: A Silver Lining

One unexpected positive trend in 2023 was the growing interest in digitizing supply chains and adopting ERP systems, particularly for compliance and quality tracking. Several exporters partnered with local and global SaaS firms to enhance production visibility and customer service.

Platforms like Byte, Salesflo, and Systems Limited’s textile-specific modules gained traction in this regard.

Conclusion

The year 2023 was a stark reminder of the fragility of Pakistan’s textile sector in the face of external and internal shocks. Yet, its resilience—evident in its ability to stay afloat despite immense pressures—underscored the sector’s importance and potential.

Moving forward, long-term reforms in energy policy, taxation, supply chain digitization, and green compliance will determine whether Pakistan’s textile industry can reclaim its place as a global competitor or continue to lose ground to regional peers.