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Markets

Bostan says Pakistan hemorrhaging dollars owing to smuggling and trade with Afghanistan

Published December 26, 2022
Malik Bostan (centre) addresses media in Karachi along with APGJSA Chairman Haroon Chand (left) and Zafar Paracha (right), the general secretary at ECAP.
Malik Bostan (centre) addresses media in Karachi along with APGJSA Chairman Haroon Chand (left) and Zafar Paracha (right), the general secretary at ECAP.

KARACHI: Malik Muhammad Bostan, president of the Forex Association of Pakistan, claimed on Monday that the country was hemorrhaging dollars owing to smuggling and its trade with Afghanistan.

“We are losing close to $2 billion to Afghanistan on a monthly basis. The government must ban trading in dollars with the neighbour. It should be done in local currency or barter trade,” said Bostan, while addressing a media briefing at the Karachi Press Club (KPC) on Monday.

The country, reeling from an economic crisis worsened by devastating floods, has recently seen the emergence of an ‘illegal, black’ market for dollars in recent weeks, with stability in inter-bank market rates failing to convince traders of the rupee’s value at around 225. Market talk suggests the dollar is being traded at more than 250 in the black market.

“Pakistan imports coal from Afghanistan, but the payments are being made in dollars,” he claimed.

In June, Prime Minister Shehbaz Sharif had approved the import of high-quality coal from Afghanistan in rupees instead of dollars to save the country’s foreign exchange.

“Afghanistan exporters aren’t accepting rupees. Around $1 billion is the export value, while around a similar amount is being smuggled out of Pakistan as 15,000 people travel to Afghanistan on a daily basis.”

According to Bostan, each traveler carrying approximately just over $2,000 a day (on average) is causing Pakistan to lose around $1 billion a month.

Meanwhile, Bostan said Pakistan’s domestic market is full of buyers with not nearly enough foreign currency to meet demand.

“A very small number of people are currently selling their dollars in the open market. These are people unaware of the black market. Otherwise they, too, would go that way, I feel.”

Bostan then said exchange companies, currently faced with a number of issues, are trying to accommodate as many customers as possible. “We want to accommodate all genuine buyers who are in need of dollars.”

However, he said, exchange companies are currently low on supply of dollars as they have to surrender 100% of their inward remittances to the banking sector. “We are left with nothing to trade.”

Bostan’s remarks and references to the black market come as Pakistan’s economy goes in a tailspin over falling foreign exchange reserves that are at less than 1.5 months of import cover. While policymakers are rushing to secure dollar inflows, talks with the International Monetary Fund (IMF) seemed to have hit a snag, and financing from ‘friendly countries’ has not yet materialised.

Last week, foreign exchange reserves held by the State Bank of Pakistan (SBP) fell another $584 million to a critical level of $6.12 billion, the lowest level since April 2014.

Earlier, Finance Minister Ishaq Dar also admitted at a public gathering that the US dollar was being smuggled out of Pakistan.

Meanwhile, Bostan said beneficiaries of ‘Hawala’ and ‘Hundi’, reference terms for mechanisms of remitting money that do not involve the banking channel, must be penalised to curb this practice.

The expert said the amount of remittances coming through illegal channels is as big as the amount coming through legal channels.

He urged the government to give a ‘premium’ of Rs3 to the dollar to remain viable. “Banks are receiving a rebate of Rs6 per dollar on remittances.”

Bostan claimed that people have stashed around $8 to $10 billion as foreign currency that is not part of the banking system. “A similar value ($8-$10 billion) of money is also being held outside Pakistan by our country’s citizens.”

Bostan predicted that the US dollar will lose its value in the long run. “Excessive sanctions on countries such as Russia, Iran and China would make them switch to currencies other than the US dollar. They may even establish a new common currency,” said Bostan.

“I see the dollar losing its value by 25% in the future. I am telling you the people hoarding dollars will eventually be making losses.”

Comments

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samir sardana Dec 26, 2022 10:38pm
POPULATION OF AFGHAN, IS 40 MILLION FAMILY OF 5 = 8 MILLION FAMILIIES ASSUME EACH FAMILY LIVES ON 8 USD A DAY = MINIMUM NOMINAL GDP OF 25 BILLION USD BUT AFGHAN IS IMPORTING 24 BILLION USD FROM PAKISTAN = 99% OF GDP OF AFGHANISTAN ! THAT IS THE PROBLEM IT IS MISUSE OF TRANSIT TRADE ! PURE SMUGGLING - CONTAINERS CROSSING THE BORDER,BEING DESTUFFED AND THEN THE CARGO SMUGGLED BACK INTO PAKISTAN ! IN SOME CASES THE CONTAINERS LOADED FROM QASIM WILL DISAPPEAR IN TRANSIT ! SO BASICALLY IT IS PURE SMUGGLING TAKING PLACE ! TALIBAN IS UNDER SANCTIONS - AND SO, IT NEEDS USD AS SAFETY PLAN.! BUT HOW IS TALIBAN SENDING THE USD TO THE FOREIGN SUPPLIERS ? HUNDI ? dindooohindoo
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samir sardana Dec 26, 2022 10:45pm
SOLUTION IF GOODS EXIT QASIM AT NIL DUTY TO TORKHAM, IT MEANS THAT THE BILL OF LADING,STATES THAT IMPORTER IS IN KABUL..IF SO, THEN Y CAN KABUL NOT USE UAE BANKERS & PAKISTAN BANKS - TO AT LEAST OPEN IMPORT LCs,FOR TALIBAN. IF THAT IS NOT POSSIBLE DUE TO US SANCTIONS- THEN A PAKISTAN TRADER CAN IMPORT ON HIS NAME - SO THAT,THAT MUCH USD IS OUT OF THE HUNDI SYSTEM - FOR STARTERS WHEN GOODS COME IN THE IMPORTER WILL GIVE A DEC;LARATION OF TRANSIT & FILE BILL OF ENTRY FOR BOND - WHERE THE BOND IS IN AFGHAN. THE CARGO WILL MOVE TO AFGHAN AT NIL DUTY. NOW ,PLA IS IN AFGHAN & PRC IS ALSO IN AFGHAN.SO PRC CAN GIVE A LOC TO TALIBAN IN YUAN & THE PAKISTANI TRADER CAN RAISE INVOICE ON TALIBAN, IN YUAN ! THEN TALIBAN CAN ALSO SELL OOAL, IN YUAN PRC WILL START MINING RARE EARTHS & COAL & METALS & SO THE ROYALTY & TAXES,WILL OFFSET THE YUAN LOC ,TO TALIBAN IDEALLY,THE DUBAI TRADERS CAN BANK WITH CCB IN YUAN & PAKISTAN IMPORTER CAN OPEN LC IN YUAN IN CIPS ! dindooohindoo
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zh Dec 27, 2022 04:09am
If want to stop smuggling of dollars, stop Zardaris and Sharifs leaving the country.
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Mohammad Fida Dec 27, 2022 05:36am
since 1980's knowledgeable circle been tossing against the presence of refugees from Afghanistn but no body listen ...even BB govt and others after the death of Zia's death? That tolerance was gradually lowering out national scenario and today's Pakistan has lost 'every thing in love of the Afghan laying like the last Mughal king Shah Zafar in Rangoun! Even today erroding all roots of Afghan refugees from Pakistan may revive our worth but it it needs Chiness style of culture revolution that kept all the birds in the skies flying to clean the atmospher and making saving on food?
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amir khan Dec 27, 2022 01:37pm
Dollar is merely a pretext, Pakistan has other severe problems that has damaged country's economy very badly. By lowering dollar is not the only solution for country's revival but some other steps are incumbent to be taken on emergency basis.
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Maqbool Dec 27, 2022 03:32pm
Our leaking Afghan border has no checks, dollars go out freely, terrorist come in freely . We have traitors in our mist
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Bonga Dec 27, 2022 04:31pm
Malik Bostan is a joke and nothing he says makes any sense as his math doesn't add up. Bottomline is that Dar needs to let the USD float to market rate, which is around 247 as per a report by JPMorgan - only then will the spread between interbank and open market stabilize.
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