KARACHI, Sept 22: While the foreign exchange is running out, it may be difficult for the country to spend a huge sum of about $1.5 billion on import of raw cotton.

The textile sector, which earns over 60 per cent of total export proceeds for the country, needs additional imported cotton worth $1.250 to $1.50 billion for the new fiscal year.

Both the US Department of Agriculture’s “World Agricultural Supply and Demand Estimates” for September 2008 and the International Cotton Advisory Committee (ICAC) have predicted a significant reduction in world cotton production and observed that Pakistan would be one of the low producing countries.

Last year, the country had to import raw cotton worth $1.101 billion when it faced a shortage. The problem is more intense this year than last year.

The cotton prices in the international market have gone up by over 40 per cent compared to last year as the world bodies watching cotton production, have predicted a global shortage of cotton.

The country is facing a serious shortage of foreign exchange and the reserves are not enough to finance import of petroleum products for this year.

Analysts said any effort to discourage import of raw cotton would make an impact in two ways. First the exports would drop with a further widening of the trade deficit; secondly, there would be a slow economic growth, with the possible laying-off of thousands of workers in the textile industry.

During July and August, the country imported raw cotton worth $93.65 million, which reflected a complete awareness of the textile sector regarding cotton shortfall.

During this period, arrival of cotton in the domestic market was nonstop.

The imported raw cotton would be translated into exportable products to attract more dollars than the investment initially required for raw cotton import.

However, currency experts and analysts said the outflow of $1.5 billion would cost much more to the country. They said with an outflow of each dollar from the reserves, the rupee gets weaker.

The historic fall of rupee suggests that the rupee gets weaker with shrinking reserves.

The rupee continued to shed its weight since the fall of reserves in October 2007 when it touched a peak level of over $16.5 billion. The rupee lost 24 per cent since January 2008.

“What is more serious about the shortfall of cotton production is that the country is unable to import raw cotton or in other words it is unable to finance this import for textile which is the backbone of the economy,” said an analyst.

He said that the economy is already under severe internal and external pressures, and any addition in it would aggravate the situation, making it more difficult for the survival of economy.

The newly-elected government trapped by the situation is making efforts to get Saudi oil on deferred payment, get soft loans from friendly countries and to get loans from donors, like the IDB, the World Bank and the IMF.

The finance minister had recently denied that the government was getting IMF help, but the IMF delegations have been in Islamabad, meeting high-ups, which is an indication that the IMF is already active to clear the path for its entry.