Major manufacturing and export-oriented sectors have rejected the government’s claims of a recovery in large-scale manufacturing (LSM), saying industrial activity continues to contract due to high energy costs, weak demand and heavy taxation. Industry bodies estimate that more than 150 industrial units have shut down over the past 18 months, while many of the remaining factories are operating at around 50% of installed capacity.
According to a news report, the textile sector, Pakistan’s largest export earner, has reported widespread closures. The All Pakistan Textile Mills Association (APTMA) said around 150 textile units have shut down due to high gas and electricity tariffs, elevated interest rates, heavy taxation and delayed refunds. According to the association, the shutdowns have reduced production, weakened exports and resulted in job losses.
The industry’s concerns contrast with official data showing 4.08% growth in large-scale manufacturing during the first quarter of FY2025-26, with exporters arguing that headline figures do not reflect on-ground conditions.
Trade data shows textile exports fell to $1.43 billion in November 2025, down 2.05% year-on-year. Overall exports declined 15.35% during the month, while imports rose 5.42%, widening the trade deficit to $2.86 billion, nearly 33% higher than last year.
Although textile exports during July–November FY2025-26 increased 3.15% to $7.85 billion, exporters say factory utilisation remains weak and margins are under pressure due to energy tariffs, financing costs and taxation.
The Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) said many large textile units that previously operated two shifts have moved to a single shift. Citing APTMA data, the association said over 100 spinning units have closed, leading to shortages of yarn and fabric for value-added exports, while several manufacturers have shut their apparel sections.
PRGMEA warned that conditions could worsen in 2026, particularly for small and medium enterprises, due to stricter European Union compliance requirements. Referring to a World Bank report, the association said meeting EU standards can cost up to €200,000 annually, exceeding the annual turnover of many Pakistani SMEs.
The steel sector has reported similar pressures. The Pakistan Association of Large Steel Producers (PALSP) said the industry is operating at 30–50% capacity, producing about 3.8 million tons annually against an installed capacity of 9 million tons, despite investments of around Rs600 billion in modern facilities.
According to PALSP, high taxation, energy costs and weak demand have forced several steel mills to shut down, while operating units are incurring losses. The association said the sector supports 45 downstream industries, contributes around Rs150 billion in revenues, provides over 200,000 direct jobs and substitutes about $2 billion in imports.
The steel producers said indirect taxation has reduced demand, noting that minimum sales tax on steel increased from Rs10,350 per ton in 2018-19 to as high as Rs42,000 per ton in 2024-25, leading to lower consumption and reduced government revenues.
As demand declined, scrap imports fell by nearly 50% between 2023 and 2025, affecting revenues and electricity consumption. Industry bodies also pointed to higher capacity payments to power producers and rising tax and power theft as informal producers entered the market.
Industry representatives compared Pakistan’s performance with Bangladesh, noting that despite similar capacity, Bangladesh produces about 6.5 million tons of steel annually, supported by lower taxes, higher import protection and lower power tariffs.
PALSP said that at full capacity, Pakistan’s steel sector could consume about 7 billion kilowatt-hours of electricity annually, compared with around 3 billion kWh currently, potentially reducing capacity payments. It warned that without policy changes, the sector risks further contraction.
Other sectors have also shown weakness. The Federal Committee on Agriculture estimates cotton output at 6.85 million bales, down 3.3%, while rice and maize production declined 3.2% and 6.7%, respectively. Cement dispatches in November 2025 fell 3.47% year-on-year to 4.14 million tons, though total dispatches during the first five months of FY2025-26 rose 11.54% to 21.45 million tons.
Industry groups also criticised reductions in tariff protection without addressing cost competitiveness, smuggling, tax evasion and misuse of exemptions in former FATA and PATA regions, warning that such policies could turn domestic manufacturers into importers and traders.
