Fitch Solutions, a research agency has forecasted that the sales in the automotive industry of Pakistan will stumble during the fiscal year 2018-19 and 2019-20 due to the investment slowdown process.
A research report has been released by the Fitch Solutions which predicts a struggling phase for the auto sector of Pakistan in coming years. The automotive industry has been relying heavily on the Chinese investment which comprises 30% of the overall foreign investment in the country. This major part of Chinese investment has dropped down by 74.8% on a year-to-year basis in the first seven months of the fiscal year 2019. Overall, the investment from China as an integral part of the China Pakistan Economic Corridor (CPEC) has also slowed down by almost 28.4% on a year-to-year basis.
In the Finance Supplementary (2nd Amendment) Bill 2019 (mini-budget) presented by the current government in January 2019, the restriction on non-filers to purchase cars was raised to a maximum of 1300cc engine capacity. However, we have seen another recent amendment as this particular restriction has also been wholly waved off from the non-filers. To some extent, it would relieve the pressure imposed due to the slowdown in investment inflows. Therefore, on behalf of this new policy, Fitch Solutions have also revised its prediction for the sales of new vehicles in the recent research report. The new forecast suggests a 2.4% contraction and 1.3% growth in auto sales during the FY 2018-19 and FY 2019-20 as compared to the previous high of 7.3% and 10.6% contraction and growth respectively.
The research agency believes that the slowdown process in the investment inflows into Pakistan is going to create a significant impact on the automobile industry of Pakistan, especially in the commercial vehicles segment. According to the statistics revealed by Fitch Solutions, the sales in the commercial vehicles segment are expected to undergo an increase of 4.9% during FY2019. Out of this, the light commercial vehicles segment is likely to see growth by 11.8% during the same period. However, the heavy commercial vehicles segment will primarily face the brunt of investment slowdown, and it’s expected to see a decline in sales by 18.1%.
Furthermore, the research report says that the lifting of the ban on non-filers from purchasing new locally manufactured vehicles would boost passenger car sales though nominally. Previously, the consumer base in the low-budget segment had decreased significantly due to the restriction on buying a new car. However, the research company believes that even the prices of low-budget cars have sky-rocketed beyond the reach of many non-filers. Therefore, not many non-filers who primarily belong to the low-income segment would be able to afford a new car even after the lifting of the ban. On this basis, the sales in passenger vehicles are forecasted to decline by 3.6% during the FY 2018-19 whereas the sales are expected to grow by a marginal 0.6% during the FY 2019-20.
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