Depreciation of exchange rate: Exporters to Afghanistan, CARs to conduct trade by banking channe

In wake of increased dollar demand, the State Bank of Pakistan (SBP) has withdrawn facilities for exporters of Afghanistan and Central Asian Republics (CARs) and made it mandatory to undertake trade only through more stringent traditional measures and banking channels. The decision would massively hurt Pakistan’s volume of trade with Afghanistan.

Earlier, it was allowed that the dollars could be purchased from Pakistan on behalf of Afghan exporters and could be furnished before the Customs authorities for allowing import and exports. Now the SBP has withdrawn all facilities with effect from December 13, 2021, after issuing fresh directives.

According to the circular issued by the SBP on December 7, 2021, stated that the Central Bank issued instructions to the Presidents/ Chief Executives of banks and all authorized dealers in foreign exchange related to exports to Afghanistan and Central Asian Republics (CARs) through land routes. The SBP instructed the authorized dealers to obtain customs declaration for passengers as per applicable laws/regulations of Pakistan Customs, for the cash convertible currencies brought over their counter for settlement of exports to Afghanistan. The SBP further instructed that realization of export proceeds against exports to CARs will be made through banking channels only.

One top Customs officials told The News in background discussions that there were three important developments related to the recent SBP circular as first of all the trade of perishable items would continue in rupee component. Secondly, all those passengers traveling now would have to show convertible currencies along with Goods of Declarations (GDs) for import and export but the currency should have legal declarations. Thirdly, the practice of traders purchasing dollars, here from open market on behalf of Afghan exporters, has been withdrawn to ease pressure on the exchange rate.

The official said that the language of the SBP circular issued on December 7 was confusing and they have sought clarifications from the SBP so as to implement it in true letter and spirit. Pakistani authorities in background discussions told this scribe that over 100 meetings were held at the highest level in Islamabad starting from Prime Minister Imran Khan and followed by all other high-ups with to facilitate Afghanistan on account of trade at this difficult time.

However, the State Bank of Pakistan took the latest measures reversing all the measures, and now bilateral trade might face a very difficult situation because Afghanistan’s banking sector was largely operating in a non-functional manner. “Pakistan and Afghanistan’s bilateral trade stood in the range of $1.5 billion per annum basis mainly in favor of Islamabad as Pakistan’s share of exports was at 65 percent while Afghanistan’s share was around 35 percent out of total bilateral trade,” said the official sources. The official feared that the bilateral trade might halt in the wake of the latest instructions and if continued it would hurt the volume of trade significantly.

Pakistan’s exchange rate faced immense pressures mainly because of the rising current account deficit, scarcity of dollar inflows, and the situation in Afghanistan had also pressurised increased dollar demands. The Pakistani rupee witnessed a consistent downslide and crossed Rs 180 against the US dollar in the open market.

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