Thousands of people have been laid off in the automobile industry in recent months as a result of a drop in car and spare part sales caused by the government’s prohibition on raw material imports, a major depreciation of the rupee, and surging inflation.
Pakistan is suffering its most severe economic crisis to date, with the State Bank of Pakistan’s (SBP) foreign exchange reserves plunging below $4 billion, just enough to cover three weeks of imports, and the rupee plummeting to historic lows against the US dollar.
Last year, the country implemented limitations on raw material imports to stem the outflow of US dollars, resulting in a dramatic decrease in industrial output and layoffs, and unemployment.
As the dollar crisis worsened, commercial banks stopped opening letters of credit (LCs), leaving importers scrambling to arrange the greenback for already placed orders.
Meanwhile, inflation surpassed 36% in April, the highest level since 1964.
“In recent months, we have laid off thousands of workers as our production has virtually ceased,” Munir Karim Bana, chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), told Arab News.
“There are no buyers now because automakers have shut down their plants.”
As raw materials worth billions of rupees were detained at the Karachi port, auto parts firms were paying demurrage, a fee payable to the owner of a chartered ship for failure to load or discharge the ship within the time stipulated, according to Bana.
PAAPAM supplies the auto sector with around 90% of its local vehicle parts.
“We have been paying interest on our bank loans, our material is devaluing, but no one is listening to our complaints,” Bana remarked.
Income streams were drying up when production facilities were decommissioned, he added.
“We were profitable and paying state taxes because all of our sales were documented and taxed,” he explained. “But we’re bankrupt now, and there’s little chance of our industry reviving in the coming years.”
Because the automobile industry is import-dependent and dollar-intensive, Rana Ihsan Afzal, Prime Minister Shehbaz Sharif’s commerce and industry coordinator, believes it will not reach “full efficiency” until the IMF bailout programme is revived.
Since November, a staff-level agreement on the ninth review of an IMF rescue arrangement was inked in 2019.
“At this stage, we need to protect our foreign exchange reserves by limiting the import of raw materials for the industry,” Afzal added.
The PM’s coordinator termed the drop in sales and huge layoffs “unfortunate,” but assured that the government was “working around the clock to revive the economy.”
“Each new day is better than the last,” stated the official. “Even now, we are ensuring the industry’s minimum sustainability… This is a transient phase in which we must adhere to some import restrictions for the automobile industry, but once our reserves replenish, we will see a surge in the auto industry.”
Apart from car parts, vehicle sales have dropped by about 70% in a year, and several manufacturing units have been closed for several months, according to Abdul Waheed, a representative for the Pakistan Automotive Manufacturers Association.
“We have non-production days as car manufacturing plants remain closed due to a variety of factors such as inflation, decreased sales, and import bans…vehicle prices have skyrocketed due to rapid rupee depreciation, which has resulted in a significant reduction in demand,” he stated. Waheed also stated that corporations were paying their employees despite temporary factory closures.
“The future seems to be bleak in terms of job opportunities in the auto sector,” Waheed said.
“The current political and economic environment in Pakistan doesn’t favor industrial production as the consumers’ backbone has broken with soaring inflation and rupee devaluation,” he added.
