Payment Restrictions Hit Auto Sector’s Production

Auto parts makers and vendors have started facing production challenges due to the restrictions imposed by the State Bank of Pakistan (SBP). The industry says it has been encountering a production crisis following the curbs put in place through Circular #09 of 2022.

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The SBP issued the circular on 20th May introducing a mechanism that required prior approval of the central bank for the import of certain goods. The circular also demands letter of credit, registration/ amendment contract, advance payment, and authorizing transactions on an open account or collection basis. According to Abdul Waheed Khan, the DG of Pakistan Automotive Manufacturers Association:

“These restrictions are hurting original equipment manufacturers (OEMs) and auto parts makers. We need relief from the government and policymakers but instead we are being crippled through various kinds of measures.” 

The prior approval of the SBP is also applicable to all import transactions under HS Code 8703 (completely knocked down units of motorcycles). Waheed Khan went on to add that “This is transforming into a serious crisis for the industry. OEMs and part makers, which were working overtime due to huge demand, are now finding it difficult to manage routine production.”

He argued that the abrupt imposition of restrictions had disrupted the sector’s smooth operations because the vendors and parts manufacturers were facing hurdles in the import of CKD units. Furthermore according to Waheed Khan, the whole supply chain including the local vendors, dealers and support entities has been affected by the policy shift.

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He feared that the move may lead to unemployment as the closure of vendors would specifically impact the daily wagers and contractual staff. Besides, it is resulting in delay in payments to foreign suppliers, causing business risk to the domestic industry. According to him, the weekly foreign payments stand at around $30 million. “These restrictions have so far delayed foreign payments of about $25 million, resulting in loss of investor confidence in Pakistan’s market,” Khan added.

Source: The Express Tribune

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