DECISION TO REMOVE IMPORT RESTRICTIONS FROM CKDs

The State Bank of Pakistan (SBP) has made the decision to remove import restrictions starting on January 2, 2022. The presidents and chief executives of the nation's authorized dealers were advised of this by the central bank in a circular.

Since May 2022, the SBP has made it necessary for businesses to obtain prior approval from the FEOD and SBP before beginning import transactions, including the issuance or modification of letters of credit (LCs), the registration or modification of contracts, the making of advance payments, and the authorization of transactions on an open account or collection basis. The authorizations were given on an individual basis.

Currently, as of January 2, 2023, the SBP has rescinded the directive. In order to placate the International Monetary Fund, a decision has been made (IMF). The government and SBP must work toward a market-decided currency rate in light of the approaching IMF assessment. The rupee's devaluation was controlled by limiting outflows.

Profit claims that despite the limitation being lifted, not all importers are having an easy time. Authorized dealers are required to prioritize or expedite imports under the following categories: essential imports, energy imports, imports by industries with an emphasis on exports, imports for agriculture, deferred payment/self-funded imports, and imports for export-oriented projects that are almost finished. Before processing any import, authorized dealers must take the risk profile of their clients into consideration as well as their liquidity position in the FX market.

The country's reserves have dropped to $6.1 billion, the lowest level since April 2014, and its import cover is a pitiful 1.16 months, indicating difficulties with managing liquidity and foreign exchange. To satisfy the IMF requirement of collecting Rs 850 billion through this tax during this fiscal year, the ministry previously hiked the Petroleum Development Levy (PDL) by Rs 5/litre on High-Speed Diesel (HSD), Rs 6.09 Kerosene (SKO), and Rs 0.90 Light Diesel Oil on December 16.

Sectors where imports are prioritized

Food such as wheat, cooking oil, etc.
Medicines, medical supplies, and essential elements of the pharmaceutical industry
the importation of gas and oil
Depending on the Ministry of Finance's decision about the merit order, coal for power projects may be imported.
Businesses that focus on exports and on the basics may import raw materials, inputs, and replacement parts.
Seeds, fertilizer, and insecticides are examples of inputs that the agricultural industry can import.
CKDs (automobiles & mobile phones) (automobiles & mobile phones)

Stakeholders in the auto business are relieved by the decision

The supply-side difficulties that automobile businesses were facing will be reduced with the resumed import of CKD kits. According to Abdul Waheed Khan, Director General of the Pakistan Automotive Manufacturers Association, companies will be able to once again import their necessary components more quickly with access to LCs, which will shorten their current production lead times and help them better meet customer demand. He said: In contrast to dealing with SBP, the industry will now deal with authorized dealers, which will be more convenient.

This will give the car industry the necessary life support at a time when the 5-month FY 2022–23 sales volumes is 31.52% lower than the FY 2021–22 sales volumes during the same period. Shafiq Shaikh, Pak Suzuki's official spokesperson and head of public relations, commented on the situation.

This has preserved thousands of jobs in addition to saving the industry.

It needs to be seen whether there is sufficient latent demand for car businesses to profit from their expanded output capacity. However, the effectiveness of this policy for the sector may be constrained by the hierarchy of rationing currency that the SBP has established and given to the ADs. The Pakistan Association of Auto Parts & Accessories Manufacturers (PAAPAM) Chairman, Munir Bana, claims:

"We import raw materials to produce automotive replacement components. The SBP will continue to regulate and limit our imports since the auto sector is not a necessary good”.

According to Munir Bana, the SBPs circular still provides potential for opacity, which leaves many observers from the automobile industry in the dark. Even if CKD kits can be imported, the industry as a whole won't experience a significant reduction in lead times if component makers are unable to import the necessary parts afterwards.

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