Initiatives to stimulate Pak-Afghan Bilateral Trade

Author Name: M Mubashir Ehsan      03 Mar 2022    

Since the fall of Kabul in August last year, the Afghan public has faced a series of challenges in coping with their new reality, not least due to restrictive US sanctions and lack of foreign financial assistance. According to World Bank estimates, the Year-on-Year inflation for basic goods has grown to 41.9%, and the major contributing factors in this are increasing prices of staples like ‘wheat, rice, pulses, and cooking oil.’ Afghanistan’s trade was shuttered by recent changes in the economic environment and lack of functioning infrastructure within the country, especially the banking sector. Pakistan’s exports have also taken a hit due to these changing dynamics as there has been a decline of USD 240.2 million from July-January FY 2020-21 to July-January FY 2021-22. There has been a reduction in Pakistan’s export to Afghanistan by 40% between this period.

Pakistan has advocated for humanitarian assistance for Afghanistan and has made efforts to support economic stability in the country. Moreover, she has considered and initiated a series of strategies for stimulating trade between the two sides.

First, in a meeting of the Afghanistan Inter-Ministerial Coordination Cell (AICC), a decision was made regarding granting a temporary 45-day waiver of Electronic Import Form (EIF), which is a mandatory requirement of the State Bank of Pakistan (SBP). EIF is an instrument allocated by the governmentto monitor the source and outflows of foreign remittances and checks that are imported without foreign exchange through the SBP’. The AICC made this decision to reduce the inconvenience faced traders as these electronic forms were not being administered by the related banks to perform transactions for imports. Before this waiver, the traders had to wait for a long time due to the heavy traffic of cargo vehicles at the Torkham and Chaman border crossing.

Second, Pakistan’s Ministry of Commerce has allowed the export of 14 items in Pak Rupees to the neighbouring country. Out of the 14 items, 8 items are food-related, and the rest include construction material, textiles, pharmaceuticals, and surgical instruments. This provision will make it easier for traders to export to Afghanistan.

Building on this, let’s explore the implications on Pakistan’s economy of using the rupee as currency in bilateral trade with Afghanistan. It is already established that one of the key objectives for Pakistan is to revive trade and facilitate traders in exporting, but other factors can be examined in this context, such as reduction in the outward movement of dollars to Afghanistan and providing an alternative to Afghan importers to use Pak Rupee to import. According to Malik Bostan Chairman Forex Association, after the Taliban takeover, ‘Afghanis based in Pakistan have been buying USD 1.5-2 million on a daily basis from the open market and sending it to their country following the shortage of dollars in Afghanistan.’ In response to the outflow of dollars to Afghanistan, the State Bank of Pakistan (SBP) took measures such as placing a limit on the travellers to Afghanistan of USD 1000 per visit and a maximum annual limit of USD 6000 per person. Other measures included improvement of documentation process at the exchange companies to increase transparency. This outflow of the dollar is one of the reasons highlighted by the Fitch’s Pak Rupee rating forecast for 2022, indicating a downward trend.

The export settlement initiative by the government is significant as the Pak Rupee has faced immense pressure and faced the worst depreciation against the dollar from PKR 123 in August 2018 to PKR 176.39 in February 2022. Although after the recent approval of a USD 1 billion loan by the International Monetary Fund (IMF) as a tranche of the bailout package to Pakistan, the rupee gained 0.51% against the dollar, the government needs to take sustainable measures to mitigate these challenges.

Pakistan has made a series of efforts through its policy interventions to play a positive role in the region, particularly to facilitate a neighbour facing a devastating economic and humanitarian crisis. The EIF waiver and export settlement initiative are substantial opportunities to ease the trade process for local and Afghan traders. On the other hand, it is important to understand that while Pakistan is importing from other countries in dollars and running a trade deficit of USD 13.8 billion in the current financial year (July–January), exports in Pak rupee would not contribute to funding this deficit. It is premature to state the overall impact of these current interventions in the medium and long run, but it is a dynamic approach introduced by the government to stimulate trade between the two countries.

M Mubashir Ehsan is a researcher at the Centre for Aerospace & Security Studies (CASS), Islamabad, Pakistan. He can be reached at cass.thinkers@gmail.com

Image Source: Abbas, G. 2021, “MoC tasked to formalise barter trade with Afghanistan,” Profit by Pakistan Today, 26 December, https://profit.pakistantoday.com.pk/2021/12/26/moc-tasked-to-formalise-barter-trade-with-afghanistan/

 

 

 

 

 

 

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