Analysts in Pakistan believe in the absence of adequate business-friendly environment, the upcoming Rs 75 billion package for six export oriented sectors would not ensure full scale recovery of export oriented industry, say analysts. Reports say that Prime Minister Nawaz Sharif is likely to announce an incentive package for five or six export-oriented sectors to the tune of Rs 65-75 billion of which the textile sector would be the top beneficiary.
According to Zeeshan Azhar, an analyst at Foundation Securities feels, the package could go some way in making textile sector competitive internationally but core issues like uncompetitive exchange rate, higher electricity/gas prices, poor power supply, outdated technology, undiversified product base and low cotton quality will continue to hamper a full scale recovery of the sector.
The said incentives would add to the incentives already in place since the effect of Textile Policy FY14-19 and the FY17 budget. Currently, rebate on local tax varies between 1-4 per cent of Free on Board (FOB) value on 10 per cent incremental exports over last year.
This rebate could go up to 3-8 per cent of FOB value. The new tax rebate could be on 10 per cent incremental exports or be extended to full FOB value. The impact on companies' bottom line would be muted in the former case but sizable in the latter, Azhar added.
The government believes the package is necessary to encourage exporters who are struggling due to lower demand from major export markets, stable US dollar-Pakistani Rupee parity, and incentive package announced by competitors like India, Bangladesh and Vietnam. The downward trajectory in textile exports has shown some respite over the last two months but prognosis of the sector remains weak. The scope and impact of the upcoming textile package is still to be seen.