Paucity of foreign reserves: Rupee down 27 paisa against dollar

Finance Minister Ishaq Dar was first to acknowledge smuggling of dollar to Afghanistan and now those in the currency market have spoken too, saying Pakistan was experiencing large-scale outflow of greenback to the neighbouring country after the Taliban’s takeover of Kabul last year.

It had eroded Pakistan’s foreign exchange reserves with the exchange rate going down thanks to smuggling, fake imports of dollars and Islamabad’s negligence towards the issue, said Malik Bostan – who is the chairman of Exchange Companies Association of Pakistan.

One may recall that Dar has repeatedly pointed out this issue but, sadly, the government remains unable to control the illegal movement for whatever reasons there may be.  

Explaining his point at a press conference in Karachi, Bostan said dollar was available for Rs155 and Pakistan’s reserves stood at $22 billion Taliban took over Kabul. “Now the reserves have sunk to their lowest level in about eight years with a dollar selling for Rs225 in the interbank market. This unhindered flow of the American currency towards Afghanistan has created a crisis for Pakistan.”

Around 15 million dollars used to cross each day from Pakistan to Afghanistan since Islamabad had permitted each person to take $1,000 per day while 15,000 people regularly travel to the neighbouring country daily, he said.

The statement came as Pakistan faces a serious crisis with the foreign exchange reserves held by the central bank plunging to $6.1 billion as of Dec 16.

Latest data shows it is lowest level of reserves since April 2014 as the reserves declined by $11.6 billion when compared with December 2021 when the amount stood $17.7 billion.

He said two months ago the Kabul regime stated that all Pakistani currency should be converted into dollar or other foreign currencies. Keeping more than 0.5 million Pakistani rupee is prohibited in Kabul and any person found with such amount of rupee would be tried under the anti-money laundering laws.

“For 42 years Afghans have been trading in Pakistan rupee. They have hundreds of billions of rupees. But now they are buying dollars from Pakistan at any cost. They will siphon off the entre dollars from Pakistani markets,” Bostan warned, adding that Pakistan must take up the matter with the Kabul government.

He said commercial banks were buying $120 million to $130 million per month from exchange companies for credit cards. “These cards are legally transferring dollars from the country. However, the government has slashed the annual per card spending limit to $30,000. Earlier, there was no limit on such transaction.”

Bostan said around 15,000 containers left Pakistan without paying import duties in the first quarter of the current fiscal year – five times higher than last year’s figure of 3,000 for the same period.

“The Kabul government has successfully maintained the dollar rate at 88 Afghani and this was due to their policies as they don’t print notes unless and until they get dollars,” he said.

He said exchange companies currently import $3 billion through export of other foreign currencies while the remittances amount to $2 billion per year.

“We can bring $7 billion to $8 billion per year if the government permits us to have agreements with 50 foreign companies for remittances compared to just three we currently have,” he said.

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