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Wednesday, May 22, 2024

Pakistan’s auto industry faces huge challenges after SBP’s new directives

Pakistan’s auto industry is uncertain about its performance over the import ban of CKD kits by the State Bank of Pakistan.

The automotive manufacturers in Pakistan have expressed a serious concern over the State Bank of Pakistan (SBP) recent clauses for the import of Completely Knocked Down (CKD) kits. A huge risk is foreseen for the auto industry that may lead to the shutdown of production of all major original equipment manufacturers (OEM).

State Bank of Pakistan through EPD circular No. 09 of 2022 has introduced a recent set of clauses for the imports.

The circular suggests prior approval from SBP for the following:

  • Import of A Number of Goods for Issuance
  • Enhancement
  • Amendment for Letter of Credit
  • Registration
  • Amendment of Contract
  • Advance Payment
  • Authorizing Transactions on Open Account or Collections Basis

Likewise, SBP’s condition of prior approval is also applicable for all import transactions for the CKD of motor vehicles under Harmonized System (HS) Code 8703.

Read more: Analyzing Pakistan’s Automobile Industry

Furthermore, the SBP’s new orders have created uncertainty in the local auto industry about its performance under the new mechanism. According to the PAMA, this abrupt procedural requirement has largely created difficulty in the imports of CKD and other major imports of the auto industry have also been disrupted.

Moreover, Abdul Waheed Khan, the Director-General of Pakistan Automotive Manufacturers Association (PAMA) in a letter to Murtaza Syed Acting Governor SBP for timely approval of CKD imports to ensure the continued production.

While expressing himself he said;

“The delay in processing approvals for CKD import transactions will lead to production shutdown for all major OEMs in the next week, which will disrupt the entire supply chain including local vendors, dealers, support entities and consequently lead to unemployment of daily wage staff and contract staff of the entire industry,”

Additionally, the DG of PAMA also mentioned that the delay in foreign payments leaves behind a negative impression on foreign suppliers and creates a huge business risk for beneficiaries for exporting goods to Pakistan. Hence, this would adversely impact Pakistan’s auto sector in the long run.

PAMA also highlighted that the weekly import of 8703 CKD is insignificant compared to Pakistan’s overall weekly imports and foreign payments. Similarly, PAMA showed concern over $25 million in delayed foreign payments in one week after the SBP’s decision, and any further delays may result in an estimated loss of $80 million to the country’s economy. Likely, the new mechanisms on imports can result in around $30 million loss to the national exchequer on weekly basis and can create unemployment in the country.

Read more: Government instructs automakers to share cost structure

Conclusively, SBP’s new directives can largely affect the production of the auto industry in Pakistan. Therefore, the government has to revise its decision on the import ban to avoid the impending plant shutdowns and to protect the employment of the industry to restore the foreign investors’ confidence in Pakistan.