Sniffing out smugglers?

Surely any sincere and pragmatic effort on the part of the government to check smuggling and hoarding of essential items, especially as economic activity is largely compromised because of the coronavirus pandemic, must be appreciated. It is precisely because of successive governments' inability, or commitment, to clamp down on smuggling that Pakistan's black economy has grown so large. At one point in the late-1990s it bloated to a substantial percentage of the formal economy, depriving the exchequer of precious billions in tax revenue and all but killing local industrial activity. And since it is clearly beyond the ability of traditional law enforcement agencies (LEAs) to do anything meaningful about something like smuggling - most likely because of the financial muscle and influence of smugglers - perhaps the prime minister's idea of seeking assistance of the country's intelligence agencies may finally do the trick. The government has also made it pretty clear that hoarding, which usually peaks around Ramazan, will not be tolerated at all this time in the holy month. The people have had a tough time of it recently, not just because of the coronavirus but also all the economic belt-tightening before it, and the headlines at least suggest that the government clearly has their interests at the top of its priority list.

Yet however successfully our spymasters are able to infiltrate smuggling networks and sabotage their deals, policymakers will still have to take the lead. Smuggling, like everything else, has costs. And so long as smugglers are able to incur those costs - greasing the right palms, buying the right officials, etc., there will always remain an attraction for them to stay in the business and continue smuggling. For example, as we know all too well, whenever the government imposes a high import duty on an item, and inflates the price differential, the said item just circumvents the official tax net and finds its way to the market; in other words, it is smuggled into the country. Similarly, if prices of certain essential commodities are significantly lower in Pakistan than Afghanistan, there will be a natural lure for smugglers to take them across the border illegally. Smugglers are able to incur the huge costs of their line of businesses because of these rather large price differentials; regardless of whether they smuggle goods into or out of a country. Unless this problem is addressed, there will always be enough incentive for somebody to break the law in exchange for attractive profits.

Therefore, while involving intelligence agencies will no doubt reduce the incidence of smuggling, it is pretty clear that over the course of time a new normal will be reached. The right approach, then, is to make policies that address the economic side of the problem also and make the opportunity cost of smuggling simply too high for it to be an inviting prospect in the first place. Once financial incentive is priced out of the equation the risk profile of the enterprise would change dramatically; thinning the market and leaving only the bigger, more powerful, players still active. That should be a far more opportune time for the clandestine services to make an appearance.

Pakistan needs to urgently address the twin problems of widespread smuggling and a large informal economy. So the government is moving the pieces in the right direction even if not in the correct order. The economy needs all the help it can get, of course, as it makes a desperate effort to overcome the immense drag caused by the coronavirus. And there has been a welcome string of good news recently. The IMF agreed to a $1.39 billion loan and put the $6 billion Extended Fund Facility (EFF) on hold, G20 agreed to a debt moratorium, State Bank of Pakistan (SBP) cut the benchmark interest rate thrice in a month and the government has opened some sectors to kick-start the economy. Now the federal government must draft a comprehensive strategy, by taking on board all provincial governments and LEAs including intelligence networks, to bring the problem of smuggling under control once and for all. The economy can no longer be deprived of legitimate tax revenue, nor local industry distressed, because of the corruption of a few powerful groups. The sooner these enemies of the state are sniffed out the better for local production and official earnings.