Karachi, September 17, 2023 – Official statistics released by the Pakistan Bureau of Statistics (PBS) have revealed that Pakistan’s spending on car imports during the first two months of the fiscal year 2023-24 (July-August) amounted to a staggering Rs 9.07 billion.
This figure represents a significant increase from the Rs 4.34 billion spent on car imports during the same period in the previous fiscal year, marking a substantial rise of 109 percent.
In terms of foreign currency, Pakistan imported Completely Built Unit (CBU) cars worth $31.37 million during the reviewed period, compared to $19.72 million in the corresponding period of the previous year.
This surge in car imports is noteworthy, especially considering Pakistan’s ongoing challenges related to a serious shortage of foreign exchange needed to meet its external obligations.
In the previous fiscal year, Pakistan imposed a ban on the import of luxury and non-essential items, including motor vehicles, as part of its efforts to manage its foreign exchange reserves. However, under the conditions of the International Monetary Fund (IMF), Pakistan lifted the ban and allowed the processing of letters of credit (LCs) for the import of cars.
Another factor contributing to the increase in CBU car imports was the removal of regulatory duties, which alleviated the financial burden on imported vehicles. However, this relaxation had unintended consequences for the domestic automobile manufacturing industry.
Mohammadali Habib, Chairman of Indus Motor Company Limited, highlighted the challenges faced by the local car industry due to the sudden disparity between locally produced and imported vehicles. The removal of regulatory duties on imported CBU vehicles created a more favorable market environment for imports, while the tax burden on locally manufactured vehicles increased significantly, accounting for up to 50 percent of the total cost.
This situation, according to Habib, hindered efforts to cater to various customer segments and constrained the growth potential of the local automobile industry.
Currently, the domestic car industry in Pakistan faces multiple challenges, including rising inflation, record-high financing rates, and a shortage of raw materials. In the previous fiscal year (2022-23), import compression measures were introduced to address the balance of payment crisis and promote local production. However, these measures had unintended consequences, affecting all aspects of the industry.
Restrictions on importing essential components, particularly Completely Knocked Down (CKD) kits, created significant challenges for the manufacturing process and disrupted the vendor supply chain, resulting in frequent plant shutdowns and the underutilization of plant capacity.
The challenges faced by the domestic car industry are further underscored by the decline in the import of CKD car units, which dropped by 18 percent to $131.28 million during the first two months of the fiscal year 2023-24, compared to $160.27 million in the same period of the previous fiscal year. These statistics reflect the complex dynamics and ongoing struggles within Pakistan’s automobile sector.