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KARACHI: Economists and industry groups warned this week that cash-strapped Pakistan’s plan to allow commercial imports of used cars, part of policy reforms aligned with the International Monetary Fund’s $7 billion bailout program, could deepen pressure on its fragile foreign exchange reserves and undermine the domestic auto sector.

At least half a dozen leading manufacturers and assemblers — including Toyota, Honda, Suzuki, Hyundai, Kia Motors, and Changan Automobile — have already lost more than a quarter of their market share to informal imports under existing baggage, gift and transfer-of-residence (ToR) schemes. These channels, widely misused for commercial purposes, have cost the government tax revenue and displaced local production, according to the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM).

Shehryar Qadir, senior vice chairman at PAAPAM, said Pakistan’s reserves could come under new strain if vehicle imports are liberalized.

“We would need dollars once the commercial import of vehicles starts,” he told Arab News. “Where would you get those dollars from?”

Pakistan’s foreign exchange reserves have stagnated at around $14 billion since July, barely enough to cover three months of imports, while exports fell four percent to $10.4 billion in the first four months of the current fiscal year. Foreign direct investment also dropped 34 percent to $569 million in the July–September quarter, according to official data.

Analysts say the IMF’s push for trade liberalization is aimed at increasing competition and improving efficiency but carries significant short-term risks for local manufacturing.

“Pakistan’s reserves have improved from 2023–24 lows but remain limited, making large-scale commercial imports unsustainable without straining the current account,” said Myesha Sohail, an analyst at Karachi-based brokerage Topline Securities. “While the Fund’s objective is to promote openness and improve external balances, the fallout for local assemblers could be sizeable unless mitigated through phased duties and safeguards.”

Industry data show car sales rose 40 percent this year through October to 42,831 units after months of slump caused by dollar shortages. But nearly 4,500 used vehicles continue to enter Pakistan monthly under ToR, baggage, and gift schemes — mostly unregulated, according to PAAPAM.

The group estimates these loopholes have allowed commercial traders to capture a quarter of domestic passenger car sales, hollowing out demand for locally made parts.

The IMF, in its April 2025 country report, said Pakistan’s automobile sector was “particularly protected” and urged authorities to reduce tariffs and preferential support for local production.

“The authorities will remove the existing ban on commercial imports of used vehicles,” the report stated.

PAAPAM and other industry groups say that condition could reverse years of investment in Pakistan’s auto supply chain, which contributes up to four percent to national GDP and supports millions of factory and vendor jobs.

“There is no precedent anywhere in the world of an automobile-producing country allowing commercial imports of used vehicles,” PAAPAM said in a report.

Economist Muhammad Waqas Ghani, head of research at JS Global Capital, said the policy could double the country’s annual import bill for completely built-up (CBU) vehicles.

“That would put new strain on the external account,” he told Arab News. 

Analyst Sohail at Topline said the policymakers must “strike a balance between IMF commitments and safeguarding domestic manufacturing capacity.”

While Pakistan’s government is finalizing its new Auto Industry Policy (FY26–31), industry observers say any sudden opening of the market could deepen the country’s import dependence at a time when its reserves and export base remain precariously thin.