Pakistan’s Textile Sector: 60% of Exports, One Structural Weakness, and a Shrinking Window

Pakistan exports $17.88 billion worth of textiles annually and has done so, with minor variation, for a decade. Bangladesh, starting from a smaller base and with no domestic cotton, now exports $39.35 billion. The gap is not explained by geography.

By Mehmood ul Hasan Qadir
Economist & Financial Analyst | Dubai, UAE

Executive Summary

• Pakistan’s textile and apparel exports reached $17.88 billion in FY2025 — a 7.39% increase year-on-year and the second-best performance in five years, accounting for roughly 60% of total merchandise exports.
• Bangladesh exported $39.35 billion in ready-made garments in FY2024–25 — more than twice Pakistan’s total — from a country with no domestic cotton.
• Pakistani textile mills pay 13–15 cents per kWh — nearly double competitors in Bangladesh, Vietnam, and India — making energy the sector’s single largest structural cost disadvantage.
• Pakistan’s effective tax burden on exporters is estimated at 68.27%, against Vietnam’s ~20%, Bangladesh’s 22.5–27.5%, and India’s 26–34%.
• The US tariff effective rate on Pakistani textiles rose to 29% in April 2025, concentrated on yarn and thread — the sector’s lowest-value, highest-volume export categories.
• Labour migration of upgrading the value chain — from spinning and weaving toward finished garments and branded apparel — remains structurally stalled despite correct policy direction in successive national textile strategies.

The Value Chain Problem

Pakistan’s textile industry is simultaneously the backbone of the country’s export economy and the clearest illustration of its failure to upgrade one. The sector accounts for roughly 60% of Pakistan’s total merchandise exports and employs approximately 40% of the industrial workforce. Every measure of its importance is large. Every measure of its trajectory relative to competitors is unflattering.

Pakistan’s textile industry is structurally positioned at the wrong end of the global value chain. The sector’s historical competitive advantage — domestic cotton supply, established spinning and weaving capacity — has locked it into the lower-value, energy-intensive upstream stages of production at precisely the moment global buyers have shifted their premium orders toward finished apparel, home textiles with sustainability certifications, and technically differentiated fabrications.

Spinning is the backbone of Pakistan’s textile complex — an energy-intensive stage that contributes lower value per unit than weaving, processing, garment manufacturing, or branded apparel. Pakistan’s total fabric production reached approximately 7.9 billion square metres in FY2024, of which the organised sector contributed only 870 million square metres, according to Khyber Journal of Public Policy analysis from Spring 2025 — a striking underperformance given the sector’s installed capacity. Cotton yarn production, Pakistan’s dominant textile export category, generates lower unit value than the finished garments Bangladesh produces from imported yarn and fabric.

Bangladesh’s structural trajectory illustrates the contrast. Starting from a position of near-total dependence on imported inputs, Bangladesh built a vertically integrated knitwear segment that now covers approximately 85% of domestic fabric demand — while Pakistan, with abundant domestic cotton, has seen the organised weaving sector stagnate. Bangladesh’s garment sector accounts for 81.5% of the country’s total export earnings. Pakistan’s textile sector accounts for 60% of exports but has not moved meaningfully up the value chain in twenty years.

The Energy Penalty

The cost structure of Pakistan’s textile industry is being steadily eroded by energy prices that have no near-term resolution. Pakistani textile mills pay between 13 and 15 cents per kilowatt-hour — nearly double the rates paid by competitors in Bangladesh, Vietnam, and India, according to industry analysis published in December 2025. PIDE’s Regionally Competitive Energy Tariffs research confirms the differential: energy costs represent a significantly higher share of production costs for Pakistani textile units than for comparable Bangladeshi manufacturers, partly because Pakistan’s sector operates at the energy-intensive spinning and weaving stages where electricity consumption per unit of output is highest.

The government’s own draft National Textile Policy acknowledged the problem explicitly: “the discontinuation of preferential tariffs and the subsequent rise in energy prices severely affected the competitiveness of Pakistan’s export sector.” The policy proposed restoration of regionally competitive energy tariffs and dedicated industrial infrastructure in export clusters — proposals that have appeared in previous textile policies without generating durable implementation. The circular debt that makes competitive industrial tariffs fiscally impossible to sustain costs Rs 2.4 trillion and is itself a product of the same energy sector dysfunction that burdens the mills.

Financing costs compound the energy penalty. Pakistan’s policy rate, though declining from its peak of 22%, stood at 11% in late 2025 — among the highest in the region and well above the rates available to Bangladeshi or Vietnamese competitors. The textile sector submitted pre-budget proposals in 2026 requesting clearance of Rs 327 billion in pending refunds, restoration of the Final Tax Regime, and reduced energy tariffs. Industry data put Pakistan’s effective tax burden on exporters at 68.27% — against Vietnam at approximately 20%, Bangladesh at 22.5–27.5%, and India at 26–34%.

The US Tariff Exposure

The April 2025 US tariff announcement introduced a new and immediate competitive pressure. The United States remains Pakistan’s largest single export destination, with 77% of US-bound Pakistani exports composed of textile and textile-related goods. The effective US tariff on Pakistani textiles — combining a 19% additional levy and a 10% base rate — reached 29%, a rate that sits between India’s 26% and Bangladesh’s 37% in absolute terms but carries disproportionate impact because Pakistan’s export base lacks the diversification that would allow rapid market redirection.

During previous episodes of US-China trade diversion — when tariffs on Chinese goods created sourcing opportunities — Pakistan failed to capture redirected demand while Bangladesh and Vietnam gained market share. The structural reasons cited: underdeveloped logistics infrastructure, high energy costs, inconsistent policies, and a narrow industrial base. The 2025 tariff shock is operating in the same structural environment. Pakistan’s textile yarn and thread face a tariff increase of 17.73 percentage points on the US route — a hit concentrated in the sector’s lowest-value, highest-volume export categories.

Key Data: Pakistan vs. Competitors

Sources: PBS Export Data FY2025; BGMEA FY2024–25; TradeInt H1 2025 Rankings; Express Tribune, April and October 2025; Dawn, May 2026; PIDE Energy Tariffs Research; Kohantextile Journal, July 2025

The Shrinking Window

Pakistan’s competitive window in global textiles is narrowing from two directions simultaneously. On the cost side, energy and financing differentials are widening against competitors who have locked in lower industrial tariffs and deeper capital market access. On the market access side, US tariff pressure is landing on a sector with limited ability to redirect orders quickly — and on a government with limited fiscal space to absorb the shock through subsidy or credit support.

The sector’s resilience indicators are genuine: September 2025’s three-year high of $1.6 billion in monthly exports, strong knitwear performance, international buyers returning for FY2026–27 order books. Leading mills installing solar capacity are covering up to 40% of energy needs through renewables, partially closing the electricity cost gap through capital investment. The value-added segment — knitwear, home textiles, branded apparel — is growing faster than the commodity segment. The structural direction is correct. The pace is not.

Bangladesh built its $39 billion garment industry from a position of no domestic raw materials, no spinning sector, and lower initial wages than Pakistan in the 1980s. It did so through sustained investment in garment manufacturing infrastructure, consistent preferential access to European markets under the Everything But Arms arrangement, and a labour force that built technical skill at scale. Pakistan has domestic cotton, established mills, a larger domestic market, and a geography that gives it access to both Western and Gulf markets. What it lacks is the policy stability, energy infrastructure, and financing environment that would allow manufacturers to invest confidently in upgrading from yarn to garment — from commodity to brand.

Closing

Pakistan’s textile sector will not be replaced as the country’s export anchor in any realistic near-term scenario. The question is whether it will still be the anchor in twenty years — or whether the combination of energy costs, financing burdens, US tariff pressure, and structural failure to move up the value chain will allow Bangladesh and Vietnam to complete the displacement that the data already shows beginning. The sector is not failing. It is falling behind at a pace that compounding will eventually make irreversible. The window to change that trajectory is open. It will not remain open indefinitely.

Sources

• Pakistan Bureau of Statistics. Export Data FY2024–25. Islamabad: PBS, July 2025.
• Kohantextile Journal. “Pakistan Textile Exports Rise to $17.88 Billion in FY2025.” July 20, 2025. https://kohantextilejournal.com/pakistan-textile-exports-rise-17-88-billion-fy2025
• BGMEA. Export Performance FY2024–25. Dhaka: Bangladesh Garment Manufacturers and Exporters Association, 2025. https://www.bgmea.com.bd/page/Export_Performance
• TradeInt. “Top 10 Garment Exporting Countries in the World — H1 2025.” 2025. https://tradeint.com/insights/top-10-garment-exporting-countries-in-the-world
• Express Tribune. “Textile Sector Regains Momentum.” October 31, 2025. https://tribune.com.pk/story/2575078/textile-sector-regains-momentum
• Express Tribune. “Strategic Realignment: Mitigating Fallout of Tariffs on Exports.” April 13, 2025. https://tribune.com.pk/story/2539675/strategic-realignment-mitigating-fallout-of-tariffs-on-exports
• Dawn. “Govt Mulls Scrapping Export Tax in Budget.” May 2026. https://www.dawn.com/news/2003828
• Wealth Pakistan / INP. “Govt Plans to Restore Competitive Energy Tariffs for Export-Oriented Textile Sector.” November 13, 2025. https://www.inp.net.pk/article-detail/inp-wealthpk/govt-plans-to-restore-competitive-energy-tariffs-for-export-oriented-textile-sector
• PIDE. Regionally Competitive Energy Tariffs and Textile Sector’s Competitiveness. Islamabad: Pakistan Institute of Development Economics, 2020. https://www.pide.org.pk/Research/Regionally-Competitive-Energy-Tariffs.pdf
• Khyber Journal of Public Policy. “Critical Evaluation of Textile Industry of Pakistan.” Volume 4, Issue 1, Spring 2025. https://nipapeshawar.gov.pk/KJPPM/PDF/CIP/RG-9.pdf
• Bangladesh Textile Journal. “Pakistan’s Textile Exports Hit Historic $6.39 Billion in First Four Months of FY2025.” December 4, 2025. https://bangladeshtextilejournal.com/pakistans-textile-exports-hit-historic-6-39-billion-in-first-four-months-of-fy2025
• Modaes Global. “Bangladesh 2026: Balancing Global Textile Dominance with Social Challenges.” December 2025. https://www.modaes.com/global/markets/bangladesh-2026-scale-and-social-pressure-in-the-great-global-textile-workshop
• Business and Human Rights Centre. “Pakistan: Textile Industry Struggling Amid Rising Production Costs, US Tariffs and Flooding Aftermath.” 2025. https://www.business-humanrights.org/en/latest-news/pakistan-textile-industry-struggling-amid-rising-production-costs-us-tariffs-flooding-aftermath-wpftc