Dar admits 'huge smuggling of dollars' taking place as Pakistan's forex reserves suffer

Federal Finance Minister Senator Mohammad Ishaq Dar admitted dollars are being smuggled out of Pakistan on a huge scale via neighbouring countries as the country’s foreign exchange reserves continue to deplete.

Addressing the ‘Sustained Economic Growth: Roadmap and Roadblocks’ event at the Second Pakistan Prosperity Forum, organised by Prime Institute and Business Recorder in Islamabad, Dar said during the first quarter of 1999 Pakistan adopted the Real Effective Exchange Rate (REER) during the Pakistan Muslim League-Nawaz (PML-N) government.

“In any system, not only in Pakistan, there are certain speculators, gamblers and ‘hundi walas’ who take country’s currency hostage.

“If the state does not come into play, then I think the exact thing will happen what has happened now,” said Dar.

He said central banks around the world including England, Bangladesh and India have intervened in the market and disbursed billions of dollars, a luxury which Pakistan does not enjoy.

“We have to make sure market-abuses must be checked,” he said. “I think that the multilaterals have to understand — we are neither the Bank of England nor the US Federal Reserve … we have foreign exchange constraints,” he said.

“So the only tool you have is making sure that such a thing does not happen, “ he said.

Dar said the authorities have initiated a crackdown.

“In the last 24 hours customs caught a person smuggling $100,000. Can we afford this happening?”

The finance minister said imported goods are smuggled to neighbouring countries. “There is huge smuggling of US dollars. You are buying coal from a neighbouring country in rupees, and these rupees come back to Peshawar.

“Then they are converted to US dollar at a premium of Rs15-20. These things must be checked,” he said.

Dar’s remarks come at a time when Pakistan faces a massive shortage of US dollar. Foreign exchange reserves held by the State Bank of Pakistan (SBP) fell another $784 million to a precarious level of $6.715 billion as of Dec 2, 2022, data released by the central bank showed last Thursday. This is the lowest level of SBP-held reserves since January 2019.

The finance minister shared Pakistan’s debt has also increased to an “unbearable” level from Rs30,000 billion to Rs54,500 billion.

“Now, this is an unbearable increase in debt. Why has this happened?

“There are two reasons: our fiscal deficit went sky high and the rupee was left to fall freely. As a consequence, we have also added Rs4,000 billion to our public debt,” said Dar, stressing that despite the rupee’s fall, Pakistan’s exports only increased marginally.

The finance czar of Pakistan reiterated that “politics must be detached from the economy”.

“The country was going to be part of G20 in a few years’ time. There should have been collective efforts to reduce the timeline and it would have been possible with the speed the country was moving, but somehow we are here,” he said.

The finance minister said that the collection of taxes has always been an important issue.

“Efforts are being made to stabilise the country’s economy, while steps are being taken to increase the country’s exports,” said Dar. “But we are confronting difficulties in the continuity of policies,” he said.

Talking to a private channel earlier on Tuesday, Dar reiterated that Pakistan is seeking financial help from Saudi Arabia that will include doubling the current deferred oil payment facility given by Riyadh to $2.4 billion per year.

“I have discussed both things (financial help and oil facilities) with the Saudi finance minister, and there are positive vibes from there. They said they will support us,” Dar said during an interview with a local television channel.

He added that the government was in touch with the Saudi authorities, but did not give a time frame as uncertainty over Islamabad’s ability to secure foreign exchange inflows persists.