Business Recorder Editorials 24th August 2026

Cotton picking, policy style

EDITORIAL: A 25 percent increase in phutti arrivals should have been welcome news for a cotton economy that has suffered years of decline.

The latest Pakistan Cotton Ginners Association (PCGA) report shows arrivals reaching 1.114 million bales by August 15, despite adverse weather and disruption from the goods and oil transporters’ strike. Yet scratch beneath that encouraging headline and the familiar story quickly returns: conflicting official data, undocumented trade, distorted cropping patterns and policies that continue to undermine one of Pakistan’s most important agricultural value chains.

The numbers themselves should worry policymakers. Sindh has recorded a 42 percent increase in arrivals to 734,000 bales, while Punjab managed only a 3 percent rise to 379,000.

More troubling is the discrepancy between the PCGA figure and Punjab’s Crop Reporting Services estimate, which put provincial production at 585,000 bales as of August 13. Add the movement of an estimated 60,000 to 70,000 bales of cotton and lint from Sindh into Punjab, and even establishing how much cotton Punjab is actually producing becomes difficult.

That is hardly the foundation on which serious agricultural policy can be built. Governments cannot manage acreage, production targets, imports or incentives intelligently when basic data from different institutions do not reconcile.

Pakistan’s agricultural administration has spent decades producing policies, committees and targets while repeatedly failing at the less glamorous business of implementation, coordination and reliable measurement.

Then there is taxation. Industry representatives estimate that around 100,000 bales have already moved through undocumented channels because of heavy sales taxes on ginning factories, and warn that the figure could reach between 1.5 million and two million bales this season unless the problem is addressed. If taxation is driving legitimate economic activity underground and ultimately depriving the exchequer of revenue, the policy deserves immediate reconsideration.

Persisting with it would amount to taxing the documented sector into informality and then wondering where the tax base went.

The more damaging distortion, however, is unfolding in the fields. Rahim Yar Khan, traditionally an important cotton-growing district, has reported arrivals of only 1,637 bales from two partially functioning factories. Industry experts blame, among other factors, the spread of sugar mills across core cotton areas, where financial incentives have encouraged farmers to switch towards sugarcane.

This is where poor agricultural planning collides with Pakistan’s political economy. Sugar has long enjoyed extraordinary influence because of the political weight associated with the industry. But privileging one crop has consequences across the agricultural value chain.

Sugarcane competes for land and other resources, while shrinking cotton production creates problems far beyond the farm. Cotton supplies the textile industry, Pakistan’s flagship export sector, so every structural weakness in cotton eventually travels downstream into industrial production, exports and the foreign exchange account.

The reported macroeconomic cost is already enormous. Industry experts cited in the report estimate that Pakistan spends between $6 billion and $7 billion annually importing raw cotton and edible oil.

For a country perpetually short of foreign exchange, allowing domestic agricultural capacity to deteriorate while precious dollars are spent replacing lost production is difficult to defend.

Pakistan once possessed a genuine comparative advantage in cotton. Rebuilding it requires more than celebrating one encouraging fortnight of arrivals. It requires credible data, rational taxation, better seed and crop policy, protection of cotton acreage from politically distorted incentives and, above all, agricultural planning that looks beyond the interests of powerful groups.

The latest arrival figures show that cotton can still surprise on the upside. Unfortunately, Pakistan’s management of cotton continues to surprise for all the wrong reasons.

The C/A worries

EDITORIAL: The current account (C/A) is slowly coming under pressure, as international petroleum prices remain persistently high, putting upward pressure on imports.

Exports are not growing at the required pace while the trade deficit is widening. Remittance growth is likely to be checked this year, and that may challenge the stability of the PKR. REER (real effective exchange rate) is already hovering higher, suggesting an equilibrium value close to Rs300/USD.

The current account posted a deficit of $328 million in July 2026, which is a better number relative to the previous month and the same month last year. The issue is that despite slowing pace of LSM growth (evident from June’s published figures) imports have crossed the $6 billion mark. Goods’ exports are standing at half that level, resulting in a goods trade deficit of $3.1 billion—17 percent higher year-on-year.

The services balance keeps improving due to better performance in services exports—Information Communication Technology (ICT) and other business services; it is partially due to the taxation advantage, with a 30 percent-plus delta for workers to move from the formal domestic sector to services rendered abroad. It maintained its higher momentum in July, with technology exports up by 18 percent to $417 million.

The combined goods and services deficit worsened by 27 percent to $3.4 billion and adding the primary balance, the total deficit stands at $4.2 billion. It is hard for remittances to keep catching up, as the total stood at $3.6 billion—hence, we have a current account deficit.

More than half of the remittances are coming from the Gulf region, where turmoil is growing due to the Iran-US war and the risks of an economic slowdown are real. Plus, the same heightened risk is keeping oil prices and the import bill high. It is creeping up inflation as well, which is likely to remain in double digits over the next two months. Overall, these developments have slowed the economic growth momentum that was building before the war.

The challenge is back to maintaining stability. Fiscal performance is good, with debt-servicing costs declining significantly. The key is to improve the trade balance through a combination of curtailing imports and boosting exports.

So far, the central bank (SBP) has been using one policy tool to curb demand by keeping real positive rates at 2-3 percent or more, which has kept upward pressure on the fiscal side to generate more revenues to service debt. A better strategy could be to let the PKR depreciate slightly; which would not only curb import demand but also have a positive impact on exports. Plus, that might give room to keep real rates less positive.

The argument gains weight by looking at the way REER is moving. It has now reached uncomfortable levels—in July, it stood at 107.92, which is the highest since May 2018. REER was at 100.0 in July 2025. It is appreciating sharply and is likely to rise further in August and September due to higher expected inflation.

The SBP should not let the currency slip onto a dangerous path where the eventuality is steep currency depreciation—the economy has experienced this behaviour numerous times in the past.

However, the SBP could counter-argue by pointing to its aggressive buying from the interbank market and the build-up of reserves. These are fine, but a prudent move could be to read the signs and move gradually before the panic button has to be hit.