The government’s policy to control inflation, shortage of dollars in the market, and import curbs have hit the Large-scale manufacturing (LSM) of Pakistan. According to the latest reports by the Pakistan Bureau of Statistics (PBS), the output of LSM has declined by 5.5% in November 2022 and 3.3% in the first five months (July-November) of Fiscal Year 2023.
The report mentioned the affected sectors include textiles, goods, garments, chemicals, cement, fertilizers, and last but not least, automobile.
Automobile Sector’s Output Decline
On year-on-year bases, in November 2022, the automobile industry’s output declined by 19%. Meanwhile, the sector has recorded an output decline of 28.7% during the first five months of the Fiscal Year 2023. Here is the breakdown of all industries, including automobile, by Ismail Iqbal Securities:
As per PBS, Large Scale Manufacturing (LSM) Index dropped by 5.5% YoY in Nov-22. pic.twitter.com/tJD42GMWWo
— Ismail Iqbal Securities (@iispl_sec) January 17, 2023
Ban on LCs
The ban or non-issuance of Letters of Credit (LCs) has directly hit the automobile industry as the car companies could not import CKD kits for assembly. This has resulted in a drop in sales, releasing the workforce, and even the shutting of production plants. The car assemblers have announced repeated plant shutdowns in the last few months. Currently, Pak Suzuki is not producing any new cars as it extended its shutdown to January 20, 2023.
Meanwhile, other companies like Honda and Toyota have kept their plants repeatedly closed as there were no kits to assemble the new cars. Meanwhile, the latest report by Pakistan Automotive Manufacturers Association (PAMA) showed that car sales once again dropped by 8% in month of December.
And the more problematic aspect of this situation is that future also looks bleak as there is no apparent respite for the industry. There is still a shortage of dollars in the market, LCs are still facing issues, and the production shutdowns are likely to continue. The government needs to take some immediate steps to stabilize the whole LSM, including the automotive industry.
What is your take on this automotive output reduction? Please share your thoughts in the comments section.
