Supply-chain Crisis Fuels Inflation and Impacts Government Revenues

Supply-chain Crisis
Amid critically low US-dollar reserves, Pakistan has banned all but essential food and medicine imports until an agreement is reached with the International Monetary Fund (IMF). Business leaders have called for an exemption from the ban for manufacturing materials, warning that the ban will cause millions of job losses. Steel, textile, and pharmaceutical industries are among the most affected, with thousands of factories closed and unemployment rates rising. Latest data shows foreign exchange reserves have plunged to $2.9 billion, enough for less than three weeks of imports, while an IMF delegation left Pakistan after urgent talks to revive a loan program ended with no deal.

“We directly feed materials to the construction industry which is linked to some 45 downstream industries,” said Wajid Bukhari, head of Pakistan’s Large Scale Steel Producers Association.

“This whole cycle is going to be jammed.”

Several small factories have already closed down after depleting their stocks, while some of the larger plants are on the brink of shutting down within days. The steel industry, with an import bill of approximately $150 million per month, has a direct and indirect impact on several million jobs.

According to the most recent data from the State Bank of Pakistan (SBP), the country's foreign exchange reserves have decreased to only $2.9 billion, which is insufficient to cover even three weeks' worth of imports. As a result, the Constructors Association of Pakistan is concerned that the construction industry could collapse soon, resulting in the unemployment of thousands of labourers. They have joined the call for the lifting of the import ban on steel and machinery.

Pakistan's economy has been impacted by years of financial mismanagement, political instability, a global energy crisis, devastating floods, and other factors. Manufacturing industries, including the textile and garment industry, have been hit hard by raw material shortages, rising inflation, fuel costs, and a depreciating currency. The IMF recently ended talks to revive a loan programme, leaving business leaders uncertain. The textile and garment industry is responsible for a significant portion of Pakistan's exports and employs around 35 million people. The All Pakistan Textile Association has called for the industry to be prioritized.

“The textile industry should be prioritised,” said Shahid Sattar, secretary general of the All Pakistan Textile Association.

“We are the mainstay of the country’s exports,” he told AFP

"How can the economy recover without exports to support foreign exchange reserves?" asked a concerned industry expert, pointing out that the textile sector has been importing a significant amount of raw fabric since the domestic cotton crops were devastated by floods last summer.

In the old Silk Road city of Peshawar city of Pakistan, factories which are producing everything from glass to rubber and chemicals, mostly for the neighbouring Afghan market, have closed one after the other in the past several months.

“Around 600 have closed, while many are operating at half capacity,” said Malik Imran Ishaq, the president of the Industrialist Association Peshawar, which represents 2,500 factories.

“The entire business community is in serious trouble.”