Pakistan garment sector faces liquidity crunch due to blockage of refund claims

Pakistan garment sector that exports more than 80 per cent of their merchandise, are facing liquidity crunch due to its huge capital stuck-up by the FBR. Although the FBR’s software system of RCPS is very excellent which completes refund process system within one month but finance ministry’s undue interference causes blockage of refund claims to the exporters, as presently more than 80 per cent textile exporters refund of over Rs10 billion is stuck by the FBR.

Moreover, the soaring tariffs of electricity, gas and other essential raw materials are leading to high cost of business in Pakistan further making it difficult against competing countries. The refund claims amounting to billions of rupees; customs rebate claims of billions of rupees and billions of DLTL claims are held up by the government for long period of time. Regarding GSP Plus, Small and Medium Enterprises (SMEs) need to be encouraged to work more effectively and be part of value chains of larger companies while value-added sector needs to have access to raw materials on internationally competitive prices.

The government and industry need a joint strategy to inform exporters of the opportunities that are available to Pakistan under the GSP Plus scheme as well as making them aware of the obstacles.

According to Prgmea former chairman Sajid Minhas, since compliance is a major element, the government may consider providing matching grants for industries wanting to put in place infrastructure needed for meeting buyer’s compliance requirements.

A broad based strategy has also been proposed for optimizing the GSP Plus opportunity, as this depends on several factors not just limited to a zero tariff access. Other factors such as lower prices, proximity to the EU market, better supply chain integration, and competitiveness of the industry as well as the industry’s ability to rapidly scale up production are important.

The maximum additional increase in imports from Pakistan to the EU after fulfilling all criteria under the GSP Plus scheme is estimated to be $1 billion over a three-year period.