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SBP’s restriction caused panic for auto assemblers in Pakistan

Auto assemblers in the country will likely experience a delay in the import of CKD (Completely Knocked-Down) kits.

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Be it a baker or an auto assembler operating in Pakistan, all are facing major problems due to the ban on certain imported goods. State Bank of Pakistan’s (SBP) direction to commercial banks to seek approval for import transaction of over $100,000 from $500,000 has added to the challenges being faced. Resultantly, auto assemblers in the country will likely experience a delay in the import of CKD (Completely Knocked-Down) kits.

Read more: SBP takes measures to restrict dollar outflow

On May 20, 2022, SBP published a circular requiring authorized dealers to receive approval from the FX operations department before issuing or amending a LOC, registering, or amending a contract, making an advance payment, or authorizing transactions on an open account or collection basis.

There is an anticipation that the supply of CKD kits would be adversely affected, until FX reserve risk is subdued.  However, as on 22nd March, automobile assemblers have enough advances to fulfil their demand for next 6 to 12 months.

In addition, senior officials from the industry have anticipated a significant increase in car prices, owing to the strong dollar, rupee’s worrying free fall, and ultimately declining demand. There is a common anticipation of the automotive industry’s analysts that there would be a 40-50 percent drop in sales compared to last year. Also, it may result in some orders being cancelled which would further reduce the expectation for automobile sales volumes in FY23.

According to Habib Metro Financial Services Report, INDU has closed bookings completely, whereas other assemblers such as PSMC and KIA have kept bookings open for some models. While HCAR has kept all car bookings open.

The immediate concern for the assemblers is working out a quota system with the SBP in which each manufacturer receives a certain amount of foreign exchange to import CKDs. However, there are already conflicts among automakers about the method to be used for calculating this quota.

However, the SBP may remove the restriction from outflow of dollars once the talks between Pakistan government and IMF become successful. IMF Resident Representative in Pakistan, Esther Perez Ruiz said, “Discussions between the IMF staff and the authorities on policies to strengthen macroeconomic stability in the coming year continue, and important progress has been made over the FY23 budget.”