Toyota and Suzuki, Pakistan’s two largest automakers, will have partial plant shutdowns next month due to a lack of raw materials due to import restrictions and currency volatility.
In recent weeks, the government has attempted to limit imports in the face of rapidly depleting foreign reserves, a declining currency, and a widening current account deficit, which has caused the rupee to lose more than 20% of its value in the last few months.
The move has had a knock-on effect on industries that rely heavily on imports, as the central bank has delayed the clearance of letters of credit (LC), causing banks to run out of dollars, limiting their ability to import materials.
According to Ali Asghar Jamali, CEO of Indus Motor Company (IMC), the Toyota car assemblers in Pakistan: “There will be 10 working days next month, only if central bank allows us to open letter of credit based on the quota they promised.”
IMC is offering refunds to customers who have experienced payment delays and markups, with deliveries likely to be delayed by at least three months and prices revised due to the country’s lack of dollars.
The central bank’s reserves have dropped to as low as $9.3 billion, enough to cover less than two months of imports.
The current account deficit reached 5% of GDP in the previous fiscal year, while imports also reached new highs.
Pak Suzuki expressed a similar emotion, quoting the central bank’s new import prior approval mechanism. Shafiq A. Shaikh, Pak Suzuki’s head of public relations, stated:
“Restrictions had adversely impacted clearance of import consignments from ports. The unavailability of materials may result in a plant shutdown in August and if the same situation continues, then from August 2022 we will have big problems.”
Analysts believe that if the current situation continues, it will pose a greater threat to the future of local auto assemblers in Pakistan, particularly smaller players and newcomers in the industry.
To read our blog on “Toyota Indus will stop manufacturing in Pakistan,” click here
