iven its sensitive dependence on a bailout by the International Monetary Fund, the federal government is likely to unveil a budget for the financial year 2024-25 in line with the reforms advocated by the Fund. No wonder multi-national businesses having exposure in Pakistan are trying to persuade the IMF to recommend lower interest rates and oppose higher rates of withholding tax on prepaid services.

A telecom company has also moved a court to simultaneously avail a legal remedy and build a public narrative. The automobile sector, too, has been affected by some policy decisions. The sector needs the budget makers’ sympathy and due appreciation of its challenges.

The local manufacturers are dreading an increase in the import of used cars, in the name of laissez-faire competition. Policymakers say maintaining competition is the bulwark against the abuse of market dominance, if not cartelization, by the car makers.

Should someone speak for the devil too? The import of used cars is detrimental to the sustainability of the current account, aggravates the balance of payments problem and replaces manufacturing with trading.

The manufacturers see Pakistan becoming a trading destination for car dealers. First, it was Japanese and Korean cars; now it is increasingly Chinese cars. There have been reports that some of the import consignments are under invoiced.

High car prices, fixed unilaterally by the manufacturer, represent a glaring failure of policy implementation by the government. In the name of creating fiscal space through custom duties on used cars, policy makers have kept the Sword of Damocles hanging over the car makers. To stabilise the sales, as return on investment, the manufacturers may be forced consider consolidation and mergers, like those we have seen in the telecom sector. Recently, the automakers have been unilaterally reducing the prices. This tactic may stabilise sales in the short run but it may not be sustainable.

In the early 1980s Pak-Suzuki had agreed to invest in a manufacturing plant to be based in Karachi and imported 800 cc cars, of which 70 percent were to be assembled locally by importing CKD (completely knocked down) kits. The government’s failure to implement the policy resulted in a price hike. As most of the parts were sourced from abroad, spiking international currency rates started determining local prices. Later, some other brands also joined in. This germinated the vending industry, which later proliferated and started manufacturing goods for other sectors, too.

Allowing the import of used automobiles is damaging the economy with grey channel transactions running into billions. This could threaten the local industry and labour force throughout the supply chain. 

Over the last decade, the import of used cars has emerged as a threat to the local manufacturers. As the government is now under an IMF programme, it needs to maintain agreed benchmarked criteria on the fiscal side. Maintaining growth in revenue is one of those. Raising custom duties is one way of doing so.

Improving fiscal performance through custom duty (at the cost of local manufacturing) amounts to killing the goose for an egg. The industry is already under a lot of pressure due to the higher cost of working capital (because of the high policy rates and higher energy prices).

Allowing used automobile imports is also hurting the economy through grey channel transactions running into billions. This is a threat to the local industry and labour force throughout the supply chain. According to industry sources, during the first eight months of the fiscal year 2023-24, the import of used cars has caused a loss of over Rs 45 billion to the local industry.

This import facility, initially available only to overseas Pakistanis, has reportedly been abused by some car dealers. The overseas Pakistanis returning to the country are expected to spend the foreign currency earned abroad. Instead, they are now spending it on imports claimed as baggage. Import by local dealers squeeze the current account, disturbing the fragile balance of payment.

This is putting at risk the very business preposition for the 13 leading manufacturers and assemblers in Pakistan. These players and the associated vendors’ network currently host over 2.5 million jobs. Wider industry related jobs bring the number to around 5 million.

The Pakistan automobile market is currently ranked 34th among the 49 passenger car manufacturing countries. It is among the 16 countries manufacturing complete vehicle segments, including passenger cars, trucks, buses and tractors.

The current policy regime can kill the local industry as the local manufacturers may not be able to come up with a new design every three to five years.

While budgets can often focus primarily on creating fiscal space for a given financial year, policy makers should not be oblivious of the long term reality.

The writer is a senior journalist and director, SDTV@SDPI. His X-handle is @tahirdhindsa. He can be reached at tahirdhindsa@gmail.com