Toyota Indus is said to halt the production operations of its cars in Pakistan and may have to refund advance payments on booked cars.
Toyota had previously cited the constraints regarding the State Bank of Pakistan’s LC approval for CKD (completely knocked down units) imports as the main reason for disruption in production. The company also observed 2 weeks of idle production in June and July, which has led to delayed production.
Sources tell us that the company will officially announce its situation regarding delayed production next week. Toyota Indus will also be refunding advance payments on its cars to customers who cannot wait for delayed deliveries. If the situation persists, Toyota Indus might have to shut down all production operations.
Due to the devaluation of the rupee in the international market, the State Bank of Pakistan has restricted the opening of Letters of Credit (LC) to several sectors, including the automobile industry. This has led to a disturbance in vehicle production and resulted in delayed deliveries.
Due to the current economic circumstances, some companies have suspended their production operations altogether. One of the main reasons for that is the non-issuance of LC.
Letter of Credit (LC)
The Letter of Credit is a financial instrument that businesses use when importing goods from other countries through international banking transactions. LCs must be processed through a country’s central bank, such as the State Bank in Pakistan’s case. A sovereign guarantee is provided by the State Bank to foreign exporter’s banks that importers in Pakistan will honor their payment contracts. In the absence of State Bank approval, companies cannot import.
Foreign exchange reserves have depleted to dangerous levels, forcing the State Bank to curtail imports. Even the chairman of Changan has issued a statement saying that the company might have to shut down production for two months due to the LC issue.
