Pakistan’s automotive industry has laid off thousands of workers due to a government ban on raw material imports, a massive rupee depreciation, and rising inflation.
According to a report from Arab News, Pakistan is facing its worst economic crisis yet, with the central bank’s foreign exchange reserves falling to $4 billion. It’s barely enough to cover three weeks of imports, while the rupee is falling to historic lows against the US dollar.
Last year, Pakistan restricted raw material imports to stop the outflow of US dollars, resulting in a sharp drop in industrial output. Commercial banks stopped opening letters of credit (LCs) due to the dollar crunch, leaving importers unable to pay for orders.
April inflation reached 36.4 percent, the highest since 1964. Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) chairman Munir Karim Bana told Arab News that the industry challenges have prompted massive industrywide layoffs.
Bana added that, due to frequent car production closures since mid-2022, car sales have fallen to a perilous degree. Additionally, the massive price hikes have also taken a toll on car demand.
Bana said auto parts manufacturers are paying millions in demurrage — a charge paid to the owner of a chartered ship for failing to load or discharge the ship within the agreed time, as raw materials worth billions of rupees are stuck at the Karachi port.
PAAPAM supplies 90% of the auto industry’s local parts. Bana lamented that, despite its cooperation with the banks, the auto parts industry is not getting any affirmative response.
We were profitable and paying taxes to the state as all our sales are documented and tax paid. But we are bankrupt now, and there is hardly any chance of revival of our industry in the coming years.
Rana Ihsan Afzal, Prime Minister Shehbaz Sharif’s commerce and industry coordinator, said Pakistan’s automobile industry is import-dependent and dollar-intensive, and may not return to its full form until the revival of the IMF bailout program.
Abdul Waheed, a spokesperson for Pakistan Automotive Manufacturers Association (PAMA) said that vehicle sales have dropped 70% in a year and some manufacturing plants have been closed for months.
He said that despite manufacturing plant closures and dwindling revenues, companies are paying their employees. Waheed added auto industry job prospects look bleak.