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Print

Pak-Afghan trade in PKR not in sight?

  • In terms of Export Policy Order, Ministry of Commerce has allowed settlement of export of certain perishable goods (fruits, vegetables, dairy products, meat) to Afghanistan in PKR on filing of declaration with Pakistan Customs
Updated 11 Sep, 2021

ISLAMABAD: The State Bank of Pakistan (SBP) is reportedly not in favour of trade with Afghanistan in Pak Rupees, due to the sword of the Financial Action Task Force (FATF) over money laundering and Know Your Customer (KYC) hanging over Pakistan’s financial sector, well informed sources told Business Recorder.

The central bank conveyed its position at a recent meeting hosted by the Ministry of Commerce on mechanism for settlement of exports to Afghanistan in view of the current situation.

In terms of Export Policy Order, Ministry of Commerce has allowed settlement of export of certain perishable goods (fruits, vegetables, dairy products, meat) to Afghanistan in PKR on filing of declaration with Pakistan Customs.

Commerce Ministry intends to add the following items in the SRO: (i) barter trade; (ii) to continue cash over counter arrangement provided by SBP; and (iii) 4AII G of SBP Rules chapter 14 on remittances of container detention charges by foreign shipping companies may be deleted.

Prime Minister’s Advisor on Commerce and Investment Abdul Razak Dawood has also expressed his reservations on trade with Afghanistan in Pak Rupees. At a recent Cabinet meeting he expressed his concern over the arrangement of trade in Pak Rupees, saying that it could not be prolonged.

Pak-Afghan trade agreement extended for another 6 months

Prime Minister Imran Khan has directed the Ministry of Foreign Affairs, the Ministry of Commerce and the Ministry of Finance to jointly deliberate and develop possible political and economic scenarios for Pakistan.

Well informed sources in Commerce Ministry told this scribe that the private sector had many reservations on the out of time and delayed response by the SBP on issues of promoting exports and making adjustments to reduce the weaknesses in the economy caused by Covid-19.

The representatives of private sector, who attended the meeting, also cited the Finance Minister who had stated that SBP did not act in time during Covid-19 and had reduced the discount rate from 13.5 to 7 percent over a long period whereby very marginalised help was extended by SBP; and that the economy received a set- back due to SBP not acting in time by quickly reducing the discount rate when domestic and global economies were all under pressure of reduced growth.

Private sector argues that a similar situation is being observed today when business with Afghanistan has increased by 50 percent during these months and exports have risen in some food commodities by 3 to 4-fold compared to the same months of 2020.

The private sector lamented SBP Director, Exchange Policy Department, Arshad Mehmood Bhatti’s repeated concerns on money laundering, FATF and other issues during the meeting, when MoC was discussing fuelling exports in the immediately available opportunities in Afghanistan due to its de-linkage from other sources.

The representatives of private sector argued that if Pakistan loses this opportunity which is at its doorstep, it is likely to be availed by other countries as the situation improves. They cited the example of China which is extending assistance, and is not only ready to make in-roads into Afghanistan but is also taking advantage of absence of other nations.

The exporters from the private sector claim that the demand for exports from Pakistan has increased manifold but the sellers are hostage to SBP’s inflexibility and failure to take timely action in the current peculiar situation. The exporters added that a simple mechanism of settlement in Pak Rupees should be notified immediately by the SBP, so as to restore Pakistan’s earlier export performance which was 70 percent higher than the present export performance of less than a billion US Dollars.

Afghan situation adds new facet to bilateral trade

The participants also raised question on conduct of SBP which is linking its decision to FATF and money laundering and not considering the country’s business interests.

During the meeting, the representative of SBP was asked as to how India traded with Iran during US sanctions when SBP could not find any mode of trade with Iran?

The private sector expressed the fear that SBP will again miss the train as with the passage of time other countries will make an effort to penetrate Afghanistan’s market. Vice President FPCCI from Balochistan, Nasir Khan, stated that Pakistan has traded with Afghanistan for decades in Pak Rupees and the reduction of trade was only due to suffocation of facilitation by SBP through its regulations which served others and did not serve the interest of the country.

They contended that the opportunity which is at our doorstep with Afghanistan seems to be again threatened by SBP through constant reminders of KYC, FATF, money laundering and other issues.

Sources confirmed that participants appreciated MoC for taking up this issue immediately and maintained that during the meeting MoC had a positive approach and urged for the formulation of an immediate mechanism with FPCCI to deal with these issues including trade payments and ensuring the security of exchanged goods.

One of the participants asked the SBP that as the balance of trade is in favour of Pakistan which is about $300 million then why can’t it be considered for settlement in Pak Rupees? He further stated that a mechanism needs to be developed for settlement in Pak Rupees, as the Finance Minister has already announced that trade settlements between Pakistan and Afghanistan will be in Pak Rupee.

According to sources, SBP representative said the main reason for the reluctance of the Central Bank in considering a liberal mechanism in trade settlement with Afghanistan in Pak Rupees is that Pakistan is still facing problems including KYC; and though SBP wants to facilitate trade yet international obligations limit the consideration of trade export promotion without ascertained reasons.

A message was sent to Commerce Advisor for his comments on trade with Afghanistan in Pak Rupees but he did not respond till the filing of this report. However, an official confirmed that the plan about mode of payment is under discussion with exporters and the SBP.

Copyright Business Recorder, 2021

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