As Pakistan emerges from one of its most turbulent economic periods in recent memory, apparel and textile executives worldwide are watching closely to see how the country’s shifting trade dynamics will affect sourcing and competitiveness. Once constrained by a severe foreign exchange crisis that curtailed access to raw materials and threatened export capacity, Pakistan is now recalibrating its position in the global supply chain. However U.S. tariffs, energy costs and ongoing currency volatility on top of slow demand and rising costs are hampering the textile and apparel sector.
Just within the last few days the Pakistan Textile Council (PTC) raised an alarm following a 3.83 percent decline in merchandise exports over the first quarter of FY26. The Pakistan Bureau of Statistics reports exports dropped 11.71 percent year on year in September, marking five consecutive months of contraction in the last six.
The resulting struggles was punctuated last week when Gul Ahmed Textile Mills Limited announced it would close its export apparel segment. The Nation reports the issues are wide spread with companies like Procter & Gamble, Microsoft and Pfizer exiting or significantly reducing operations in the country.
“These developments are a wake-up call. They are symptoms of deeper structural issues – Pakistan’s cost of doing business is simply becoming unbearable.” PTC Chairman Fawad Anwar said in a statement. “The writing is on the wall. Unless the government recalibrates its approach on energy, taxation, and policy stability, Pakistan will see more closures in both textile and non-textile sectors. The time to act is now.”
PTC continues to lobby the government to take steps to level the playing field for Pakistan against its competitors.
To better understand the challenges facing Pakistan, HGI sat down with Dr. Aadil Nakhoda, assistant professor of Economics at the Institute of Business Administration in Karachi, to unpack what’s really happening on the ground. From tariff advantages over regional rivals, to the growing role of U.S. cotton in European value chains, to the urgent need for diversification both within and beyond textiles, the conversation highlights the opportunities and risks apparel executives should be tracking.
Read on to learn how Nakhoda says Pakistan should position itself in the face of regional competition, domestic reforms and global demand pressures.
HGI: How have the U.S. tariffs impacted Pakistan’s competitiveness in the textile and soft goods market?
AN: What we see is that textiles are very sensitive to price changes. Pakistan is benefiting in certain established products, which we are competing against China and India directly, like kitchen linens, towels and bed sheets. The apparel sector is competing more against Vietnam and Bangladesh. There we may not see as much gain, because, the [tariff] advantages with Bangladesh is not as high [at] just 1%. And Vietnam has a lot of different cost advantages. The 31% difference that we have with India and about 11% with China, that may actually play a big role in our advantages. But what the question is, how much will they be able to capture? What is the capacity of our textile producers, and how much has their outreach been in the U.S. to take advantage of this dynamic, which changes a lot?
HGI: Going forward, how can Pakistan continue to grow despite tariffs?
AN: Pakistan is the second largest importer of U.S. cotton, after China. And I believe now, with the floods [in August and September], there is going to be demand for more imported cotton into Pakistan, because cotton fields have got damaged by flood, and we already have an issue with the quality of the local variants that is being affected. So then, what is going to happen to the total demand of imports of U.S. cotton? And if we demand more U.S. cotton, will we be able to get into the value chains that are provided with exports to the U.S.? How will that be built up?
We could actually use U.S. cotton to export to Europe as well. So how do we build up our production in textiles, in higher value added goods but in such a way that we do not substantially increase our exports to the U.S. and come again under the radar in terms of a trade surplus, but we balance it participating in those value chains in Europe and other destinations, using higher quality U.S. cotton?
HGI: Long term, how can Pakistan boost exports in the apparel sector and beyond?
AN: There is this whole push that Pakistan needs to diversify away from textiles. Within textiles, you need to diversify towards high value goods. But in other sectors, we also need to diversify. And that is always a question mark, because that comes [down] to our capacities and capabilities in the other sectors. So the advantage [could be in the] IT sector, which is again a big thing and especially now that the laws of State Bank has changed where IT companies can open up subsidiaries abroad. So that, again, is a question mark, and how that will naturally define a way that we can increase our overall exports and competitiveness. So, there is a lot of questions in this. The whole dynamics have changed, because the U.S. is our largest export market.
But again, I believe that Pakistan needs to become more integrated with the Southeast Asian economy, so that we take advantage of the production networks, the expertise they have, and so that we can eventually export our goods to other countries, to the European countries, and satisfy the demand of the consumers there, which ultimately is the most important thing in those more developed markets.
What we need diversification in is our sources as well. How we import our sources so that we can actually increase our own productivity and ultimately increase our exports. Classification of exports market wise is always a tough challenge, because all the other countries want to create their own production networks, such that they export to the U.S. as well.
HGI: Other than tariffs, what are the biggest challenges Pakistan faces in terms of exports?
AN: One of the biggest challenges that Pakistan has with respect to other countries is you have very high energy tariffs here. Our price of electricity, price of gas, everything, is much higher than what you see in Vietnam.
And then another one of the biggest challenges is acquiring land for production to set up your factories. In other countries, you see more subsidized land being provided, easier land access.
The energy sector is something that we need to have a very quick, rapid transformation in in general, to ensure that competitiveness remains high.
And then there is our currency issue, because if the currency is volatile, we don’t know what’s going to happen to it in the next three months. And if that’s the question we ask, then what happens to our exchange rate policy? That can actually bring uncertainty as well. So, there’s a lot of risk involved in that, which you may not see in South Asian economies, which have a more stable currency outlook.
HGI: What is the government doing about energy costs?
AN: The challenge that they have is the rapid [pace of] private consumers moving onto the solar bandwagon and installing their own source of energy.
About 20 to 30 years ago, we promised independent power producers fixed dollar returns on the capacity that they installed. The problem is that as people have moved away towards solar, that requirement for that capacity from the grid has become less. So as people move away, especially the richer ones that were able to afford the higher bills and would generate the greater revenue in terms of consuming more electricity, that will lead to challenges for the government.
This is all tied to dollar payments and as the dollar becomes more expensive, the bill payments also became more expensive. And as electricity consumption reduces, naturally, per unit charges then increase. And that affects all the other sectors, especially the industrial sector. If solar energy ultimately becomes cheaper, and everyone starts investing in solar energy for that reason, then what happens with the grid energy, which is actually needed to power your industrial sector, because they can’t be reliant on their own self sufficiency?
In the next three to four years, they’re trying to phase out [the old contracts] so that then the capacity payments will fall. You need to rewrite these contracts or phase out the ones that are inefficient and then think about how to manage the newer ones and then move towards renewable energy. Because one of the things is a lot of these power producers were dependent on furnace oil, thermal gas, which is all imported. Now, if we move towards renewable energy, once we become more dependent on our own sources, the import bill actually goes down.
HGI: Why has currency fluctuation been such a challenge for Pakistan?
AN: Well, there’s a lot of speculation, because we have a lower level of reserves, which is around $20 billion. There was a time when we had hit about $3 billion about two to three years ago, and that was causing a lot of panic with our state bank, with the government. There was this threat of Pakistan not being able to meet its debt obligations, which would eventually lead to default. Restructuring was an important tool that we were asking creditors to do, et cetera. Then that actually led to a whole economic transition, such that it led to a lot of import restrictions being imposed. A lot of these measures were introduced, which basically reduced our ability to export too because we did not acquire the inputs that were necessary to ensure that we remain competitive in other markets.
