Toyota and Suzuki are to partially shut down vehicle assembly operations in Pakistan this month due to raw material shortages, exchange rate volatility and curbs on the letters of credit (L/Cs) they need to import materials according to the Reuters news agency.

The Toyota assembly line is expected to be running for just 10 days in August and, even then, only if L/Cs for essential imports are available.

Depleted foreign reserves

To protect depleted foreign reserves the State Bank of Pakistan (SBP) has restricted the flow of imports and limited the number of L/C approvals and cash against document import transactions until further notice.

The central bank's measures respond to a strengthening US dollar, which reached all-time highs in mid-July, leading to the rupee losing 20 per cent of its value this year. Coupled with a delay in the disbursement of a US$1.12 billion IMF loan, this has created uncertainty in Pakistan's currency market.

L/C clearance

The SBP has also delayed the clearance of L/Cs with banks facing US dollar shortages which directly affects the ability of the firms assembling the Japanese vehicles to import the materials they need.

"There will be 10 working days next month, only if central bank allows us to open L/Cs based on the quota they promised," Ali Asghar Jamali, chief executive at Indus Motor Company, which assembles Toyota vehicles in Pakistan, told Reuters.

Global L/C shortage

Pakistan is amongst several less developed and lower middle income countries across the world reporting disruptions in L/C flows as they struggle to cope with tough economic conditions and foreign currency shortages (DC World News, 29 July 2022).

The full Reuters article, Toyota, Suzuki to partially shut Pakistan output over forex, shortage issues, can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.