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