Home Editorial Editorial: Cotton Mills Take the Hit

Editorial: Cotton Mills Take the Hit

Already burdened by record inflation and falling reserves, Pakistan’s economy faces more peril

by Editorial

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Pakistan is the sixth-largest producer of cotton in the world. It also has the third-largest cotton spinning capacity in Asia (after China and India), with thousands of ginning and spinning units producing textile products from the cash crop. Also, Pakistan is the third-largest producer of “better-quality” cotton globally. With the government confirming millions of acres of crops, including 35 percent of the cotton crop, have been damaged by this year’s unprecedented flooding, it is no surprise that the national economy, already in the oxygen tent of the IMF, would suffer. The big bad news has finally trickled in: cotton mills are closing down because of lack of cotton supply resulting from inundated crops in Punjab, Sindh and Balochistan.

According to local media, a hundred smaller mills have already suspended operations “due to a shortage of good-quality cotton, high fuel costs, and poor recovery of payments from buyers in flood-hit areas.” One must be relieved that “larger firms supplying to global companies like Nike Inc., Adidas AG, Puma SE, and Target Corp.” are less affected—for now—as they are well-stocked. But they are also facing rough weather, as demand for their products has fallen about 10 percent for this quarter due to a slowdown in Europe and the U.S. The mills facing closures are estimated to employ about 10 million people, accounting for 8 percent of the national economy, and amounting to over half the nation’s export earnings.

The overall impact on Pakistan of this situation can be seen from estimates of cotton production slumping to 6.5 million bales this year, compared to a target of 11 million. That means that Pakistan could be forced to spend about $3 billion of funds it doesn’t have to import cotton from countries such as Brazil, Turkey, the U.S., East and West Africa and Afghanistan just to keep the mills running. To sum up, about 30 percent of Pakistan’s textile production capacity for exports is hampered because of cotton and energy shortages; the sector, which exports about 60 percent of its production, is also facing poor demand domestically due to the dire straits of the economy. Global institutions have already warned that Pakistan’s gross domestic product is likely to halve, from 5 percent in the last fiscal year to 2.5 percent, due to the roughly $30 billion in damages caused by the floods.

Unfortunately, there is little Pakistan can do under the circumstances. The prevailing economic situation has already seen the government adopt several harsh measures just to secure a tranche of $1.1 billion from the International Monetary Fund to avert imminent default. The closure of cotton mills risks worsening the country’s employment situation and hitting its export earnings. For Pakistanis already reeling from record inflation and a precarious rupee, better days are not ahead.

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