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Auto industry lays off thousands as sales decrease by 70%

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1 year ago

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  • Industry official says raw materials worth billions of rupees stuck at port. 
  • PM’s aide says govt working to revive economy.
  • Sale of vehicles has also gone down by close to 70%.

ISLAMABAD: The automotive industry has laid off thousands of workers in recent months due to a decline in the sale of vehicles and spare parts triggered by the government’s ban on the import of raw materials, massive depreciation of the rupee and soaring inflation, The News reported citing an Arab News report.

Pakistan is facing its most daunting economic crisis to date, with foreign exchange reserves held by the State Bank of Pakistan (SBP) falling to $4 billion, barely enough to cover three weeks of imports, and the rupee plummeting to historic lows against the US dollar. 

The country had imposed restrictions on the import of raw materials last year to prevent the outflow of US dollars, leading to a sharp decline in industrial output and causing layoffs and unemployment. 

Amid the worsening dollar crunch, commercial banks also stopped opening letters of credit (LCs), leaving importers in limbo to arrange the greenback for already placed orders.

Inflation meanwhile soared beyond 36% in April, the highest in the country since 1964.

“We have retrenched thousands of workers in recent months as our production has virtually come to a halt,” Munir Karim Bana, chairman of the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), told Arab News.

“There is no buyer now as auto manufacturers have shut down their plants.”

Auto parts’ manufacturers were paying demurrage, a charge payable to the owner of a chartered ship on failure to load or discharge the ship within the time agreed, Bana said, as raw materials worth billions of rupees were stuck at the Karachi port. 

PAAPAM supplies around 90% of local parts of vehicles to the auto industry.

“We have been paying interests on our loans from the banks, our material is getting devalued but there is nobody to listen to our grievances,” Bana said.

With production units closed, income streams were drying up, he added.

“We were profitable and paying taxes to the state as all our sales are documented and tax paid,” he said. “But we are bankrupt now, and there is hardly any chance of revival of our industry in the coming years.”

Rana Ihsan Afzal, the coordinator to Prime Minister Shehbaz Sharif on commerce and industry, said the automobile industry may not reach “full efficiency until the revival of the IMF bailout programme” as it was import-dependent and dollar intensive.

A staff-level agreement on the ninth review of an IMF bailout deal signed in 2019 has been delayed since November.

“We have to protect our foreign exchange reserves at this stage by keeping a check on the import of the raw material for the industry,” Afzal said. 

Commenting on the decline in sales and the mass layoffs, the PM’s coordinator called it “unfortunate,” while assuring that the government was “working round the clock to revive the economy.”

“Each new day is better than the last,” the official said. “Even now we are ensuring the minimal sustainability of the industry … This is a temporary phase in which we have to stick to some import restrictions for the automotive industry, but when our reserves build-up, we will be seeing a boom in the auto industry again.”

Apart from the sale of auto parts, the sale of vehicles has also gone down by close to 70% in a year while some manufacturing plants have remained shut for several months now, Abdul Waheed, a spokesperson for Pakistan Automotive Manufacturers Association, told the Saudi media outlet.

“We have non-production days as cars manufacturing plants remain shut due to multiple reasons including inflation, decrease on sales and ban on imports…vehicle prices have shot up due to rapid rupee devaluation and this led to a significant reduction in demand,” he said. Waheed added that companies were paying their staff despite manufacturing plants going through temporary 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.

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Business

Dar chairs the CCOP meeting; Blue World’s bid offer of Rs.10 billion is rejected.

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The Foreign Minister/Deputy Prime Minister chaired the Cabinet Committee on Privatization meeting.

Other committee members who attended the conference included the Federal Secretaries of several Divisions, the Ministers of Finance and Revenue, Industry and Food, Commerce, Power, and Privatization.

The CCOP took the PC Board’s recommendation into consideration and suggested that Blue World’s bid of 10 billion rupees for the sale of 60% of PIACL’s shares be rejected. The bid was rejected by the CCOP, who chose to follow the PC Board’s advice.

The government’s determination to sell out PIACL through government-to-government or privatization was reaffirmed by the CCOP.

The CCOP was pleased with the Aviation Division’s evaluation of PIACL’s sound financial standing.

Additionally, the CCOP established a committee, chaired by the Minister of State for Finance, to assess potential transaction possibilities for the privatization of the Roosevelt Hotel and the appropriate modes of adoption in light of existing legal rules.

Prior to its subsequent meeting, the CCOP also ordered that all difficulties be resolved and an agreement for the selling of services to an international hotel be concluded.

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The KSE-100 Index has surged by 790 points, resulting in an all-time peak for the stock exchange.

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The benchmark KSE-100 Index increased by 790 points, marking a new all-time high for the Pakistan Stock Exchange (PSX) at 94,982 points.

The record-breaking performance underscores a surge of optimism and investor confidence in the stock market.

As investors responded to favorable economic signals, the market experienced a significant increase of over 500 points in early trading. Later, the KSE-100 Index reached another record level of 94,786 points after adding 594 points to its upward trajectory.

This positive development comes as the State Bank of Pakistan’s (SBP) foreign exchange reserves saw an increase of $84 million, reaching $11.26 billion during the week ending November 8, according to data released by the central bank on Thursday.

This represents an increase of 0.75% from the previous week. In addition, the nation’s total liquid foreign reserves experienced a modest increase, increasing by $33.7 million or 0.21% week-on-week to $15.97 billion.

In contrast, commercial banks’ reserves experienced a decline of $50.3 million or 1.06%, ultimately settling at $4.71 billion.

Furthermore, the economic team of Pakistan has expressed confidence in the discussions with the International Monetary Fund (IMF). Minister of State for Finance Ali Pervaiz Malik, in an exclusive conversation with Samaa TV, claimed talks were moving in a positive direction.

Highlighting improvements in Pakistan’s economic conditions, Malik noted substantial progress over the past six months to a year. He emphasized that Pakistan’s current economic situation has seen significant enhancement, with a reduced current account deficit of only $100 million in the first quarter, a reflection of the government’s strategy to increase remittances and boost exports.

Malik shared that discussions with the IMF are primarily focused on external financing, and while there have been speculations about a potential mini-budget or an increase in the petroleum levy, he clarified that these are currently premature considerations.

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Positive IMF negotiations propel KSE-100 Index above 94,000 points

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As a result of investors’ optimism about the reported progress in the continuing talks with the International Monetary Fund (IMF), the Pakistan Stock Exchange (PSX) experienced a robust surge.

The benchmark KSE-100 Index of the PSX, which tracks market sentiment, rose 713 points to a new record high of 94,068 points, breaking above the 94,000-point barrier, as the trading session began.

Early in the day, the stock market began its upward trajectory as the KSE-100 Index steadily rose, gaining 574 points to reach 93,932 points. A possible agreement with the International Monetary Fund (IMF) might lead to more fiscal stability and back Pakistan’s economic reforms, which is why investors are so optimistic about the country’s future.

Officials from the Federal Board of Revenue (FBR) informed the International Monetary Fund (IMF) on Wednesday that the government would not be introducing a mini-budget and would instead continue to aim to collect Rs12,970 billion in taxes each year.

In line with continuing discussions with the Fund, FBR sources revealed that petroleum goods will not be subject to the General Sales Tax (GST).

The fact that Pakistan’s tax-to-GDP ratio has increased from 8.8% to 10.3%, a 1.5% gain viewed as a favorable sign of Pakistan’s fiscal policies, has reportedly pleased the IMF, who has voiced satisfaction at Pakistan’s recent economic performance.

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