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That Afghanistan has been an economic-foreign affairs issue for Pakistan since 1947 is a fact. In the past, especially since the Soviet invasion of Afghanistan in 1979, Pakistan continues to sacrifice its economic interests at the geo-political considerations.

The collateral losses of this misadventure are beyond imagination. The discussion in the following paragraphs, however, is limited to the abuse of Afghan Transit Trade and the necessary corrective actions taken by the caretaker government on this matter.

As per the reported position the Afghan trade data is as under:

Afghanistan had a total export of 870,488.51 in thousands of US$ and total imports of 8,568,013.88 in thousands of US$ leading to a negative trade balance of -7,697,525.36 in thousands of US$. The trade growth is 31.51% compared to a world growth of -1.73%.

Two questions are arising from this primary data. The first pertains to the identification of the sources available to the Afghanistan government to finance these imports; and second, whether or not these imports are actually wholly consumed within Afghanistan. In fact, both the questions are interrelated.

The growth in Afghan trade of 31.5% as against a decrease of 1.73% on the global level reflects that things are not in order. The Afghanis and their government in Kabul, which is not recognized by the world at large, are conducting trade through Pakistan to sustain their economic existence.

The increase in imports is actually an economic device to manage the Afghan economy.

Annually, Afghanistan needs USD 8.5 billion for its imports. But this landlocked country has only USD 1 billion of exports. The remaining USD 7.5 to 8 billion is required to be paid to the importers.

The discussion in this article is about the modes of payment or how the prices of imports are settled. A part of the sum, estimated at around 50%, i.e., USD 4 billion, is acquired from the currency market in Pakistan that results in increasing the demand for USD in Pakistan.

This puts immense pressure on our reserves as it promotes hundi/havala and results in rupee depreciation. The goods so imported are used and consumed in Afghanistan by its residents and payment is made in the Afghan currency.

The Afghan currency is converted into PKR and is used to buy USD from Peshawar and Quetta markets.

In that process, the USD in Pakistan legally available with the Exchange Companies is effectively used to finance the Afghanistan imports and the rupee weakens. Now, that this currency business has been administratively handled, there is a stability in the value of Pakistani rupee.

When we juxtapose the abuse of Afghan transit trade in this scenario it completes the picture. It becomes apparent that out of USD 6 to 8 billion imports effectively USD 4 billion are for Pakistan.

These goods are generally imported by ‘Benami’ Afghan importers. For all practical purposes it is an import by a Pakistani importer.

The may be ‘Black Tea’ importers using an ‘imposter’ with an address somewhere near Kabul or Jalalabad. The rest is done by the Pakistani entity behind the veil of an Afghani importer created for import under the transit trade.

Since there cannot be any outward remittance from Pakistan for such imports, therefore the funds are arranged through surrogates outside Pakistan financed by havala from Pakistan. In addition to havala USDs are also acquired from the open market. In short, Pakistan’s availability of USD is depleted by USD 8 billion.

This mechanism is explained in the chart.

In simple words, the whole USD 8 billion is the undocumented cash untaxed economy of Pakistan. It amounts to around 2.5 trillion rupees cash in the market. This explains the increase in cash in circulation and increase in trade in Afghanistan after the Taliban takeover.

From another angle it can be clearly stated that the Taliban government in Afghanistan is economically sustaining itself only for the reasons that Pakistan is feeding the Afghans from its hard earned US Dollars.

This is a rather simplistic but realistic account of what is being done. If both of these abuses are checked then there is no reason that rupee should be above 240-250 to one USD. It would not be unrealistic to expect the rupee around this level by March 2024 if the present administrative action and policy continue.

The question before army chief General Asim Munir, SIFC and the Caretaker setup is whether or not the abuse of Afghan Transit Trade can be allowed under any circumstances. A strong and clear answer in this regard is in the negative. This circus has to be stopped.

The government has taken three fundamental and much-needed steps to address the abuse in this regard. These are:

a. Enforcement of regulations for Exchange Companies: The exchange companies have been asked to increase their capital and at the same time banks have been asked to open exchange companies.

This will result in elimination of the lowest category of exchange companies and their franchises from the market since cash dealings would have to be accounted for and managed properly. It is only due to this reason alone that the rupee has strengthened from 323 to 287 to a USD;

b. Banning certain items from Afghan transit trade: Through SRO 1397 of October 3, 2023 Ministry of Commerce has banned some important smuggling-prone items through Afghan Transit Trade.

The main items are fabrics, tyre, black tea, cosmetics, home appliances, etc. There cannot be any import of such items from any sea or land ports of Pakistan;

c. Processing fee and bank guarantee: Through SRO 1380 of October 3, 2023 Federal Board of Revenue has placed a ‘Processing Fee’ on some items imported for Afghanistan such as Chocolates, CBU Home Appliances, etc.

Furthermore, for items of Afghan transit trade, instead of Revolving Insurance Guarantee, Bank Guarantees will be required.

All the three steps are fundamental corrections. Having dealt with these issues practically from all angles it is the author’s view that these are major steps for settling the long-awaited economic reforms for this country.

Nevertheless, after serving under a political government the author is fearful that there will be attempts to undo these fundamental corrections due to political expediency and ‘shutter-down’ pressures.

It is the duty of the people at the helm to ensure that this corrective movement is maintained at all cost. It is interesting to note that there is complete blackout of the fact that some major items have been banned for being traded in this manner. These are vested interests.

The question why there is such silence has an easy answer. The traders involved in the abuse of Afghan transit trade are now fully exposed before the government and the industrial sector alike. If this country is to economically survive then the actions referred above need to be continued on a permanent basis.

Copyright Business Recorder, 2023

Comments

Comments are closed.

Hasan Faraz Oct 10, 2023 09:25am
As usual focused and to the point analysis, Shabbar sb. Strong administrative actions are critical for our economic survival. Pls continue to highlight these issues and required solutions.
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Usman Oct 10, 2023 09:36am
And as a result of these afghan actions ruppe gets cheaper and we have to pay for high petrol imports and inflation increases.And afghans dream on taking pakistan while they cant even feed themselves.
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Tughril Sabir Oct 10, 2023 12:12pm
Then we should accept that PTI govt's policies kept the dollar at 178. It spiralled soon after beggars came into power.
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cod Oct 10, 2023 12:52pm
@Tughril Sabir, we should also accept that dollar was at 100 rs in 2018 until international bhikari did IMF ghulami in 2019. please dont be a youthia
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Arshad Javed Oct 10, 2023 01:38pm
معیشت کا بیڑہ غرق والا اب معیشت پر لیکچر دیتا ھے۔
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Adil Iqbal Oct 10, 2023 02:17pm
Surely the right steps taken so far and the expectations of people are at highest !! We can witness a fear that upcoming government will find it difficult to sustain the pressure, but to save the country from economic disasters, the SIFC has to ensure there is momentum in right direction. I'd stress for identification of and punishment to culprits whether traders, industrialists or any other part of society including "" "". This will restore the confidence and serve as reference for future.
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Tughril Sabir Oct 10, 2023 02:55pm
@cod, but still they kept it low keeping in view the international commodity prices. After co vid as soon as export increased and economic indicators gave positive signs, pTI Govt. Send packing in an unprecedented way by direct external intervention.
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Tariq Oct 10, 2023 06:38pm
Trade Numbere for Afghanistan are completely wrong and mentioned without any reference. A very average piece
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Kahn Oct 10, 2023 08:57pm
Pakistan policy is one man show The question who ,s policy destroying Afghanistan? Where is you see in words that you destabilize neighboring country? Next to you Where ak 47 gun came from / where is heroine came from WHO radicalized Afghanistan and Pakistan society Before we blame Afghani or Afgnistan for everything
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Attu Ram Punjabi Oct 10, 2023 09:41pm
No doubts, writer is much experiences about economy of Pakistan, some drawback point, now time is in our hand to run our country with safe hands, in future must realistic action against culprit to miss use of our dollars, we are earning from our labourers working out side country. Must be stopped unauthorised business in country, I request to specially COAS SB, to take action against businesses decoit persons.
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Az_Iz Oct 10, 2023 11:17pm
The Afghan currency is converted into PKR which is used to buy USD. Then what happens to the Afghan currency? Is it thrown into trash? If it is used to pay for Afghan goods like coal, etc, then what is the problem?
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Farid Siddiqui Oct 10, 2023 11:27pm
This is how our Country need to be managed permanently in all sectors, keep the good work going on.
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رشید اختر Oct 10, 2023 11:59pm
انسان کو اللہ نے اسی لیے دماغ اور عقل دی ہے کہ وہ اپنے گھر اور گھر والوں کو سب سے پہلے رکھے. اس کے بعد اگر کچھ کر سکے تو ارد گرد اور پروس. مصنف نے اپنے ملک کے مسائل خصوصاً بیرونی کرنسی کی وجہ سے پاکستان کے مسائل کا تفصیلی جائزہ لیا اور صحیح سمت آگے جانے کی راہ کی نشاندہی کی ہے جو میں اکنامکس کا طالب علم ہوتے ہوئے بالکل صحیح سمجھتا ہوں. اللہ سے دعا ہے کہ اس ملک کے ڈرائیور اسے صحیح سمت میں ہی لے کر چلیں.
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Proud-Afghan-Economy Oct 11, 2023 04:19am
PAK economy will grow-up as soon as they STOP supporting terrorists groups, financing terrorists, TALIBAN, terrorists activities and money laundering. PAK economy is broken bcos of following reason - spending national income incl taxes on militery.. and defense and killing AFG leaders for decades. Can't blaim AFG for your own errors. Everyone knows what is reality.
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Bashir A Aziz Oct 11, 2023 05:47am
Question is, what happens to Afghan currency that is used to buy the Pakistani Rupee (scratching my head)? Can someone help me understand what is this Afghani currency used for? There must be a reason for someone to buy Afghani currency; I must be missing something. I do not see a problem if the purchased Afghani currency is used to buy goods and services.
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Sadam wazir Oct 11, 2023 08:35am
Shabbir, the duffer, has Afghan phobia
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Babar Oct 11, 2023 11:30am
excellent. its not only loss of UDS but restricting our imports due to shortage of the former and loss of exchequer in shape of w.tax on short imports.short $ leading high rates leading to inflation.
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Anonymous Oct 11, 2023 06:05pm
He will take U turn after few days and reiterate his stance of Pakistan's in default situation.
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Sohail Oct 11, 2023 09:12pm
@Proud-Afghan-Economy, you are right
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ishrat salim Oct 11, 2023 11:03pm
@cod, you should have watched Mr miftah who had mentioned that Mr Dar had kept the value of dollar low artificially and that it should be st Rs 150, which was done when artificial cap was removed. Do some research of the past before making unsubstantial comments.
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ishrat salim Oct 11, 2023 11:13pm
@Arshad Javed, Mr Shabbir sb was not a finance minister, hence, not responsible for economic policies. he was Chairman FBR, and under his Chairmanship many steps were taken to raise tax collection, increase in tax base, plugging of tax loopholes, identified areas for tax collection neglected in the past. Sales taxes from retail sector through POS; made law for installation of application in big industries like sugar tobbacco etc; whole sale, identified theft of electricity by big businesses industries and traders etc; these steps generated highest tax collection in country's history. what's else you need ?
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Abbas Oct 12, 2023 09:21am
@Tariq, Kindly share link of the correct numbers to justify your point.
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