Pakistan’s economy is showing signs of recovery, with the State Bank of Pakistan (SBP) forecasting GDP growth between 3.25% and 4.25% for FY26. But while policymakers tout improving fundamentals, the country’s textile sector — a key export driver — warns that it’s being squeezed out of global markets by rising costs and policy bottlenecks.
SBP Sees Stability Returning
Speaking at the Pakistan Textile Council’s (PTC) annual meeting in Karachi on Tuesday, SBP Governor Jameel Ahmed highlighted what he called “clear progress” on macroeconomic indicators. Pakistan recorded a current account surplus in FY25, while remittances surged to $38 billion. The central bank’s foreign exchange reserves climbed to $14.5 billion, boosted by $7.8 billion in market purchases, he noted.
Inflation has also cooled sharply, falling to 3.2% in June 2025, allowing policymakers to bring the benchmark interest rate down from 22% to 11% over the past year. Ahmed credited fiscal discipline, reforms in exchange companies, and stable external debt levels for strengthening investor confidence and easing market volatility.
Floods and Policy Gaps Threaten Textile Exports
Despite the optimistic economic narrative, Pakistan’s largest manufacturing and export sector is voicing deep concerns. Textile leaders argue that the headline growth numbers mask sector-specific challenges, especially after flooding devastated cotton-producing areas in Sindh, disrupting a vital supply chain.
PTC Chairman Fawad Anwar criticized the government for removing several raw materials from the Export Facilitation Scheme (EFS), saying the move has pushed costs even higher. He also pointed to an extraordinary opportunity: Washington’s 50% tariff on Indian textile imports, which impacts roughly $16 billion worth of trade.
“Pakistan should be capturing this market,” Anwar said, warning that without immediate action to revive the EFS and reduce structural costs, the sector will miss a rare opening to boost exports.
Economic Outlook Hinges on Policy Follow-Through
The tension between upbeat macroeconomic forecasts and ground realities in the textile industry highlights the fragility of Pakistan’s recovery. While growth between 3.25% and 4.25% would mark a significant improvement from recent years, sectoral hurdles and climate shocks could blunt those gains.
Industry players say bold, targeted reforms are now essential — not just to keep Pakistan’s textile exports competitive, but also to ensure the broader growth forecast isn’t overly optimistic.
