Govt urged to restore EFS in original form
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Pakistan Hosiery Manufacturers Association Chairman Babar Khan has emphasised that the Export Facilitation Scheme (EFS) should be restored in its true spirit and local supplies should also be included in its scope as the scheme has contributed to boosting exports not only in the value-added sector but also across several non-traditional areas.
Speaking at a press conference in Karachi on Wednesday, he noted that the process of depositing sales tax and receiving refunds was taking five to six months, which created liquidity issues. He was of the view that the spinners' lobby was demanding duties on yarn and fabric to maintain its monopoly and was misleading the government. "We make up to 70% value addition in imported cotton; therefore, we demand a long-term policy," Babar Khan said, adding that there was constant anxiety before every budget over possible policy changes.
Karachi Chamber of Commerce and Industry (KCCI) President Jawed Bilwani claimed that the All Pakistan Textile Mills Association (Aptma) chairman had acknowledged during a Planning Commission meeting that the quality of their yarn was substandard. He emphasised that imported cotton was both cheaper and of better quality, which enabled exports of non-traditional products. The EFS supported exports after the downturn caused by Covid-19 and should continue as originally envisioned, he said and mentioned that all textile composite units were supporting their stance.
In response to a question, Bilwani stated that the value-added sector had not misused the EFS and a real-time audit could be conducted, alleging that the misuse occurred in the iron and steel sector. He stressed that the scheme had opened up new export opportunities.
Bilwani questioned how exports were increasing when hundreds of spinning units had shut down. He proposed that the government should give sales tax exemption on local cotton and yarn sales as well.
Furthermore, he urged that utility tariffs for the spinning and export industries be aligned with those in the regional competitor countries. He recommended introducing a final tax regime instead of a normal one for export sectors and abolishing the advance tax collection.
Meanwhile, at a joint press conference held at the PHMA Lahore office, the hosiery manufacturers and the Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) demanded urgent action to restore the EFS in its original spirit. The request comes after local yarn and fabric producers demanded the withdrawal of the scheme, citing its misuse.
The leadership jointly called on Prime Minister Shehbaz Sharif to intervene and halt policy shifts that were threatening to dismantle the EFS. They warned that the ongoing bureaucratic distortions, compounded by lobbying from the spinning sector for new tariffs, were pushing the small and medium enterprise (SME)-based apparel export industry towards serious crisis.
PHMA Zonal Chairman Abdul Hameed and PRGMEA Regional Chairman Dr Ayyazuddin said the EFS had been introduced to allow duty-free import of raw material for exporters, giving Pakistan's apparel sector a competitive edge.
"Instead of simplifying exports, the EFS has become bogged down by manual procedures and is now under threat from proposed tariff changes," said Abdul Hameed.
Ayyazuddin stressed that the SMEs, which formed the bulk of the value-added industry, could not survive under such conditions. "We operate on thin margins and short timelines. The EFS was a breakthrough for us, but now it's being reshaped to serve upstream interests. These tariffs, reportedly pushed by the spinners' lobby, protect a narrow segment at the cost of Pakistan's largest job-creating export base."
The industry leaders expressed concern over reports of potential imposition of duties on raw material like synthetic yarn, man-made fibre, technical fabric and accessories – none produced locally. "Any tariff on items under HS Chapters 54, 55 and 96 is unacceptable," said Hameed. "These are essential production inputs and taxing them means taxing exports at the very beginning." Speaking virtually, former PRGMEA chairman Ijaz Khokhar said the entire value chain had welcomed the EFS as a much-needed correction in policy. "But distortions are creeping in. The original vision of a seamless, transparent system is being hijacked," he said.
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Policy issues in the EFF programme — III
Covid-19 pandemic, and then the catastrophic floods in 2022, both of which had significant climate change causality – towards which Pakistan has contributed very little in terms of global carbon footprint – and pushed the country to take on considerable amount of loan — on top of its already difficult situation in terms of debt distress before these two events — that has created a meaningful gross financing issue for the country over the last few years, and over a medium term horizon. Multilateral support during both these events has been seriously lacking, including the one-time SDR allocation by IMF to the tune of around USD 2.7 billion in August 2021 – where allocation rather than being based on needs in the exceptional environment of the pandemic, was made as per the usual criteria of quota – was significantly far less than what was needed. Despite repeated calls by development activists internationally, and similar demands made under Barbados's PM Mia Mottley-led 'Bridgetown Initiative', nothing of substance has been done in this regard by the IMF. Table 3b titled 'Pakistan: External Gross Financing Requirements and Sources, 2022/23–2029/30' from May 2025 released 'IMF Country Report No. 25/109' highlights this otherwise much needed provision of IMF SDR allocation to be zero over the medium-term, which is the entire period covered in the table. On the contrary, financing requirements are huge – from FY2025-26 to FY2029-30 they are projected at USD 19.3 billion, USD 19.8 billion, USD 31.4 billion, USD 23.1 billion, and USD 22.2 billion, respectively – even after including very modest levels of current account deficit — for the same fiscal years, being projected at USD 1.5 billion, USD 2.1 billion, USD 3.9 billion, USD 4.7 billion, and USD 5.7 billion, respectively. Policy issues in EFF programme — I Pakistan's exports depend heavily on imported intermediaries, which are not possible to be appropriately make in the wake of lack of meaningful support from IMF in terms of enhanced SDR allocation — on top of releases to the tune of only USD 1 billion from time to time over roughly three-year EFF programme, which began in September 2024, and which are quite insignificant when seen in the context of the huge gross financing requirements — since the quota-based SDR allocation as assistance in the pandemic in August 2021 was low to start with, and since then likely climate change caused floods-related losses have not received much multilateral support, not to mention that the country is among the top-ten most vulnerable countries with regard to climate change crisis, and faces significant gross financing requirements over the medium term. Hence, in the absence of meaningful SDR allocation, and the adoption of otherwise unjustified over-board austerity policy, it is hard to import needed level of intermediaries for exports, which is among the main sustainable sources to achieve macroeconomic stability, to come out of the debt distress, and to move towards higher economic growth. Moreover, a lack of exports would mean lack of capacity to sustainably meet debt obligations, where unlike IMF's assessment in the report that 'Public debt remains sustainable over the medium-term… near-term risks of sovereign stress remain high…' both short-term, and medium-term risks are high, especially due to significant downside risks on account of a very volatile geopolitical situation – the recent Iran-Israel conflict saw a sudden spike in oil prices from around USD 65 per barrel to around USD 75 per barrel — and fast-unfolding climate change crisis — the Finance Minister reportedly indicated a significant role of climate change in reducing in reducing agricultural yield of major crops over the current fiscal year — creating upward pressures on imports payments, along with likely hurting exports, which overall means further increase in external financing gap, and may also result in greater debt distress. Policy issues in the EFF programme – II Instead of realizing the need to provide meaningful support in terms of enhanced SDR allocation — which is a global need being highlighted over the last few years, as indicated above, as a number of developing countries are facing serious debt distress — IMF is dealing with this situation in a routine way, in terms of the usual prescription of country enhancing its productive efficiency, which is in general a rather long-term variable in the presence of non-radical economic reform strategy that the neoliberal, and over-board austerity-based current EFF programme is not allowing. In the meantime, the country is stuck in a low-growth equilibrium. Lack of needed much larger reform scope in the current EFF programme, austerity-based approach not allowing greater investment into the demos to enhance their economic empowerment, and political voice to put greater pressure on public policy for radical, and deeper reforms, and no enhanced allocation of SDRs – not even once over the medium-term, which is the entire time horizon reflected in the programme document – coupled with a highly volatile environment of polycrisis, will likely not allow the country to reach sustainable macroeconomic stability. This in turn, would not allow the country to board an upward moving economic growth trajectory in any sustainable way. In that sense, the current EFF programme is just providing financial support mainly for a few more years to pass in a low-growth environment, which will neither help in creating basis for enhancing the export base for meaningfully dealing with the debt distress, including bringing gross financing needs to a sustainable level, nor will allow build-up of economic growth, and resilience to lower the otherwise fast-increasing poverty levels – where close to half of the population is below poverty line as per recently released World Bank figures – and to be better prepared for climate change crisis, and related 'Pandemicene' phenomenon; where Pakistan is among the top-ten climate change crisis affected countries. (Concluded) Copyright Business Recorder, 2025
