Auto Industry in Trouble as CKD Imports Come to a Halt

Pakistan’s automotive sector is in hot waters as the imports of Completely Knocked Down (CKD) kits have come to a complete halt.

The development comes a month after the State Bank of Pakistan (SBP) had ordered automakers to seek permission from its Foreign Exchange Operations Department (FEOD) for the issuance/amendment of Letters of Credit (LCs).

Local Mobile Assembly Units Fear Closure as LC Crisis Deepens

However, well-placed sources in the automotive industry have stated that the issuance of LCs for the import of CKD kits has been closed since 20 May as the central bank is fearing a shortage of foreign exchange reserves.

LCs will reportedly be allowed to be issued once IMF’s loan program is resumed.

They have said that the automobile assemblers have CKD kits for just 6-12 months in stock. In case the LCs are not reopened, the automakers may witness delays in deliveries and stop bookings altogether.

On the other hand, since most automakers import CKD kits and assemble the cars locally, the devaluation of the Pakistani Rupee has negatively affected the automotive sector as the Pakistani Rupee has depreciated by more than 20% against the US Dollar in the last two months.

To absorb the depreciation shock, automakers have also been forced to raise the prices of cars. However, they are hopeful that the issuance of LCs will be reopened soon and the central bank will lift restrictions on the import of CKD kits as soon as the International Monetary Fund (IMF) resumes its loan program with Pakistan.

Resultantly, the Pakistani Rupee is expected to make some of the lost ground against the US Dollar, which could bring stability to the prices of automobiles in the country.

Published by
Haroon Hayder