Pakistan’s auto industry could go extinct due to SBP’s restrictions

According to Pakistan’s Automotive Manufacturers Association (PAMA) and Pakistan Association of Auto Parts and Accessories Manufacturers (PAAPAM), the country’s auto industry is on the brink of extinction.

Due to a severe shortage of foreign exchange and parts supply issues, the local auto industry has experienced a considerable setback. Both automotive associations have sent a joint letter to the Governor of the State Bank of Pakistan, Jameel Ahmed.

Pakistan’s auto industry to go extinct

In the letter, it was stated that the industry is on the brink of extinction because of the strict restriction imposed by SBP, and the bank’s lack of cooperation in the import of the auto sector. This led to the factories facing intermittent closures, while vendors and assemblers have to pay off workers.

The letter warned that if immediate measures are not taken, this will lead to massive unemployment, auto assembly plant closures, capital flight, and government revenue loss. Furthermore, it added that the industrial breakdown was due to direct and indirect influences on the issuance of the letter of credit (LC).

According to the Pakistan Bureau of Statistics (PBS), car assembly kit imports dropped to 38%. The number fell from $808 million to $499 million in H1 of FY2022-23. This has further led to an inventory shortage and a decline in massive sales and profit decline for automakers.

While citing all of these facts, the associations have urged the SBP governor to remove the import restrictions to ensure the auto sector survives. Likewise, another reason for the crisis is the depreciation of the rupee, tighter fiscal and monetary measures, and the rising rate of inflating having a negative impact on the industry, along with decreased consumer demand. Because of the weakened rupee, production costs have increased and this has further restricted the manufacturers’ bottom line.

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