Business

Auto industry lays off thousands as sales decrease by 70%

Published

11 months ago

Farwa

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.

Business

Pakistan’s $1.1 billion loan tranche is approved by the IMF board.

Published

2 days ago

Farwa

The cash is the third and last installment of a $3 billion standby agreement with the international lender that it obtained to prevent a sovereign default last year and that expires this month.

Following the discussion of Pakistan’s request for the release of funds at today’s IMF Executive Board meeting in Washington, the final tranche was authorized.

Pakistan and the International Monetary Fund (IMF) came to a staff-level agreement last month about the last assessment of a $3 billion loan package.

The total amount of $1.9 billion that the nation has received thus far is divided into two tranches: $1.2 billion in July and $700 million in January 2024.

According to Finance Minister Muhammad Aurangzeb, Islamabad could have a staff-level agreement on the new program by early July. Pakistan is asking the IMF for a fresh, longer-term loan.

In order to support macroeconomic stability and carry out long-overdue and difficult structural changes, Islamabad says it is seeking a loan for a minimum of three years; however, Aurangzeb has reluctant to specify the specific program in question. If approved, it would be Pakistan’s 24th IMF bailout.

See Also: Pakistan formally requests new IMF assistance

The event transpired on the day following Prime Minister Shehbaz Sharif’s meeting with IMF Managing Director Kristalina Georgieva, during which he reaffirmed the government’s resolve to restart Pakistan’s economy.

During the meeting held in conjunction with the World Economic Forum Special Meeting, the prime minister announced that he had given his finance minister, Muhammad Aurangzeb, strict instructions to implement structural reforms, maintain strict fiscal discipline, and pursue prudent policies that would guarantee macroeconomic stability and continuous economic growth.

Georgieva was commended by him for helping Pakistan obtain the $3 billion Standby Arrangement (SBA) from the IMF last year, which was about to be finalized.

Business

Macroeconomic circumstances in Pakistan have improved.

Published

2 days ago

Farwa

By virtue of the Board’s resolution, SDR 828 million, or roughly $1.1 billion, can be disbursed immediately, increasing the total amount disbursed under the arrangement to SDR 2.250 billion, or roughly $3 billion.

After being adopted by the Executive Board on July 12, 2023, Pakistan’s nine-month SBA effectively served as a framework for financial support from both bilateral and multilateral partners, as well as a policy anchor to resolve imbalances both domestically and internationally.

According to the official announcement from the IMF, Pakistan’s macroeconomic conditions have improved during the program. Given the ongoing recovery in the second half of the fiscal year, growth of two percent is anticipated in FY24.

With a primary surplus of 1.8 percent of GDP in the first half of the fiscal year 2024—well ahead of expectations and putting Pakistan on track to meet its target primary surplus of 0.4 percent of GDP by the end of the fiscal year—the country’s fiscal condition is still strengthening.

Even while it is still high, inflation is still falling and should end up at about 20 percent by the end of June if data-driven and adequately tight monetary policy is continued.

In contrast to 11.4 per cent last year, the IMF predicted in an official statement that Pakistan’s tax collection and grants will stay at 12.5% of GDP in FY2024.

After remaining at 7.8% of GDP in FY2023, the deficit is predicted to stay at 7.5% of GDP in FY2024.

Business

Pakistan’s fuel prices should drop.

Published

2 days ago

Farwa

At 0423 GMT, U.S. West Texas Intermediate crude prices fell 13 cents, or 0.16%, to $82.50 a barrel, while Brent crude futures were down 10 cents, or 0.11%, to $88.30 a barrel.

Both benchmarks’ front-month contracts saw losses of over 1% on Monday.

on line with the worldwide trend, the price of gasoline is anticipated to decrease by Rs. 5.4 per liter on the local market. In the same way, buyers in the Pakistani market may see a drop in the price of diesel of Rs8 a litre.

Additionally, it is anticipated that the prices of light fuel and kerosene will decrease by Rs5.40 and Rs8.3 per liter, respectively.

The finance ministry will receive a summary from the Oil and Gas Regulatory Authority (OGRA), and PM Shehbaz Sharif will be consulted before a final decision is made today.

The federal government raised the cost of gasoline by Rs. 4.53 per liter and diesel by Rs. 8.14 per liter at the most recent review.

At the moment, the price of gasoline was Rs 293.94 per liter, while the price of high-speed diesel was Rs 290.38 per liter.