Toyota and Suzuki will partially shut down vehicle assembly operations in Pakistan next month due to raw material shortages, supply chain disruption, exchange rate volatility and curbs on the letters of credit (L/Cs) they need to import materials.

Vehicle producers may even close the factory doors for longer if the State Bank of Pakistan (SBP - central bank) continues to delay L/C clearances for banks facing a US dollar shortage, according to senior industry figures.

L/C and import restrictions

The SBP has restricted the flow of imports and limited the number of L/C approvals and cash against document import transactions until further notice with the aim of protecting depleted foreign reserves (DC World News, 1 August 2022).

The decision has triggered a domino effect on sectors dependent on imported materials for final product assembly. According to reports, the central bank's postponement of L/C clearance, coupled with banks experiencing a scarcity of dollars, has hindered their capacity to import essential materials.

More closures threatened

Factory closures in Pakistan's motor industry could be longer next month depending on the SBP's handling of L/C processing according to Ali Asghar Jamali, chief executive of the Indus Motor Company which assembles Toyota vehicles in Pakistan.

"There will be 10 working days next month, only if central bank allows us to open L/Cs based on the quota they promised," he told the Reuters news agency.

Indus will refund customers experiencing delays and surcharges on their payments and deliveries are expected to be postponed by a minimum of three months, he added.

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