The State Bank of Pakistan’s (SBP) announcement of an increment of 150 basis points in the interest rate has raised concerns among Pakistan’s auto-parts manufacturers.
The Chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), Abdur Razzaq Gauhar, has reportedly requested the SBP to reverse the 1.5 percent increase in the interest rate as it could critically damage an important segment of the Pakistani automotive industry.
Gauhar stated that the industry is already going through a tough time due to the ongoing supply chain issues such as increased freight charges, raw material costs, and their shortfall in the market. He added that the industry is facing a dramatic increase in operational costs which is making it hard for companies to stay afloat.
“Auto part manufacturers are struggling to survive amid rising cost of raw material and swelling freight rates, deterioration of rupee-dollar parity, increase in minimum wages and expensive energy prices. The jump in policy rate might prove to be the last nail in the coffin as several industrial units have been forced to shut down”.
He also highlighted that the SBP’s hike is a huge impediment to the fulfillment of Prime Minister Imran Khan’s vision that stresses the complete indigenization of car parts in Pakistan. He said that this increase will force many companies to retreat from their goal to manufacture parts in Pakistan.
Gauhar explained that “many new players have entered this segment however soaring cost of inputs was a challenge for the auto part manufacturers. Localization of imported items by this segment has saved billions of rupees in foreign exchange for Pakistan,” and added that these contributions and progress will be for naught if the SBP maintains the revised interest rate.