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How Pakistan-Afghanistan trade directly affects the dollar rate

Method being used despite banking reforms in Afghanistan

SAMAA | - Posted: Aug 5, 2021 | Last Updated: 2 months ago
Posted: Aug 5, 2021 | Last Updated: 2 months ago

Trucks and other vehicles travel in the mountainous area near Torkham, close to the Pakistan-Afghanistan border on March 21, 2017. Photo: AFP

Unlike how it’s done in other countries, transferring trade goods to Afghanistan requires the trader to deposit the amount equalling the goods’ value in dollars in the bank in advance.

Traders normally buy the dollars from the local markets and deposit them.

According to personnel associated with the Pakistan-Afghanistan trade, traders acquire the I-form after making the payment in advance but the confirmation of the payment is not received from Afghanistan. This leads to this method being used for money laundering, while many traders declare fake imports to claim rebates as well.

The method initially came into acceptance because of the lack of banking facilities in Afghanistan but is still continuing despite reforms in the sector.

However, due to pressure from international financial institutions, the commerce ministry called for the abandonment of this method and the State Bank of Pakistan also issued a circular against it.

The ruling, however, affected the trade between the two countries, and following demands by trade associations for the improvement of the banking system the government reinstated the former method until October 15.

The central bank confirmed it through a circular on July 29.

The traders used this opportunity to buy dollars from the local markets and started depositing cash in banks.

They also started acquiring I-forms in higher quantities resulting in increased demand for the dollar in the market. This can be one of the reasons for the recent rise in the currency’s value.

According to Malik Bostan, the Forex Association of Pakistan president, among other reasons, the informal trade channel between Pakistan and Afghanistan is contributing to the increase in dollar prices.

“Throughout the world, dollars are transferred from abroad for exports but for trade between Afghanistan and Pakistan, the currency is bought from local markets,” he told Samaa Digital.

Bostan said the method is used for money laundering and rebates are claimed after declaring fake exports.

“Nearly 30,000 people cross the Pak-Afghan borders every day and the permission to carry $10,000 is also exploited for smuggling and money laundering.” In this way, he said, hundreds of thousands of dollars are lost. “Afghanistan uses the normal method for trade with other countries but does not cooperate with Pakistan,” he added.

The informal way ensures traders are paid within two days.

According to KP Chamber of Commerce Senior Vice-President Shahid Hussain, the State Bank’s step to control this situation resulted in the traders receiving the payment in nine to 11 days.

“The State Bank has given a concession now but we have given them some suggestions to find a way out,” he said. “Some banks in Afghanistan can be specially registered to serve this purpose.”

Hussain believed though the demand for the dollar has gone up, the situation will be back to normal in a few days.

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