September 18, 2023
Economy Pakistan

Pakistan’s Companies Suspend Operations Due to Raw Material and Foreign Exchange Shortages

Pakistan’s economy is facing a fresh crisis as some of the country’s largest companies are shutting down operations due to a shortage of raw materials and foreign exchange, among other problems. These closures are adding to the problems of an economy that’s already struggling to avert a debt default.

Suzuki Motor Corp.’s local unit in Pakistan, for example, has extended the shutdown of its manufacturing plant until February 21 due to persistent shortages of parts. Meanwhile, Ghandhara Tyre & Rubber Company, which manufactures tires and tubes for automobiles, shut its plant from February 13, citing difficulties in importing raw materials and obtaining clearance of consignments from commercial banks.

These are just two of several listed companies, including those in fertilizers, steel, and textiles, that have either shut down their factories indefinitely or suspended operations intermittently. The cause is a shortage of inventory or cash, or even a drop in demand, and they are putting jobs at risk.

Pakistan’s $3.19 billion in foreign currency reserves mean the country is unable to fund imports, which has left thousands of containers of supplies stranded in its ports and stalled production. This is further exacerbating an already-high inflation rate that’s putting many goods out of reach of the public.

The closures of these companies will likely harm economic growth and increase unemployment levels in Pakistan, according to Tahir Abbas, head of research and investment at Arif Habib Limited. He said he’s never seen such extensive shutdowns among listed companies.

In addition to Suzuki, Honda Motor Co. and Toyota Motor Corp.’s local units also went through weeks-long plant closures. This weighed on Pakistan’s car sales, which fell 65% to the lowest in almost three years in January compared to a year ago, according to Pakistan Automotive Manufacturers Association data.

Other companies that have shut or slowed down operations include GSK Plc’s Pakistan unit, Engro Fertilizers Limited, Fauji Fertilizer Bin Qasim Limited, Nishat Chunian Limited, Amreli Steels Limited, Millat Tractors Limited, and Diamond Industries Limited.

The situation in Pakistan is becoming critical as the country faces the worst economic crisis since 2008, according to Abbas. He expects economic growth to slow to between 1% and 1.25% this fiscal year ending in June, compared to 6% a year ago.

The Pakistani government will have to take steps to stabilize the economy and prevent further job losses and economic damage. A possible way to address the shortage of foreign exchange reserves is to encourage more exports, thereby increasing the country’s foreign currency earnings. However, such measures will take time to bear fruit, and it may take several months or years for Pakistan’s economy to recover fully.

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