Bostan says Pakistan hemorrhaging dollars owing to smuggling and trade with Afghanistan

KARACHI: Malik Muhammad Bostan, president of the Forex Association of Pakistan, claimed on Monday that the country was hemorrhaging dollars owing to smuggling and its trade with Afghanistan.

“We are losing close to $2 billion to Afghanistan on a monthly basis. The government must ban trading in dollars with the neighbour. It should be done in local currency or barter trade,” said Bostan, while addressing a media briefing at the Karachi Press Club (KPC) on Monday.

The country, reeling from an economic crisis worsened by devastating floods, has recently seen the emergence of an ‘illegal, black’ market for dollars in recent weeks, with stability in inter-bank market rates failing to convince traders of the rupee’s value at around 225. Market talk suggests the dollar is being traded at more than 250 in the black market.

“Pakistan imports coal from Afghanistan, but the payments are being made in dollars,” he claimed.

In June, Prime Minister Shehbaz Sharif had approved the import of high-quality coal from Afghanistan in rupees instead of dollars to save the country’s foreign exchange.

“Afghanistan exporters aren’t accepting rupees. Around $1 billion is the export value, while around a similar amount is being smuggled out of Pakistan as 15,000 people travel to Afghanistan on a daily basis.”

According to Bostan, each traveler carrying approximately just over $2,000 a day (on average) is causing Pakistan to lose around $1 billion a month.

Meanwhile, Bostan said Pakistan’s domestic market is full of buyers with not nearly enough foreign currency to meet demand.

“A very small number of people are currently selling their dollars in the open market. These are people unaware of the black market. Otherwise they, too, would go that way, I feel.”

Bostan then said exchange companies, currently faced with a number of issues, are trying to accommodate as many customers as possible. “We want to accommodate all genuine buyers who are in need of dollars.”

However, he said, exchange companies are currently low on supply of dollars as they have to surrender 100% of their inward remittances to the banking sector. “We are left with nothing to trade.”

Bostan’s remarks and references to the black market come as Pakistan’s economy goes in a tailspin over falling foreign exchange reserves that are at less than 1.5 months of import cover. While policymakers are rushing to secure dollar inflows, talks with the International Monetary Fund (IMF) seemed to have hit a snag, and financing from ‘friendly countries’ has not yet materialised.

Last week, foreign exchange reserves held by the State Bank of Pakistan (SBP) fell another $584 million to a critical level of $6.12 billion, the lowest level since April 2014.

Earlier, Finance Minister Ishaq Dar also admitted at a public gathering that the US dollar was being smuggled out of Pakistan.

Meanwhile, Bostan said beneficiaries of ‘Hawala’ and ‘Hundi’, reference terms for mechanisms of remitting money that do not involve the banking channel, must be penalised to curb this practice.

The expert said the amount of remittances coming through illegal channels is as big as the amount coming through legal channels.

He urged the government to give a ‘premium’ of Rs3 to the dollar to remain viable. “Banks are receiving a rebate of Rs6 per dollar on remittances.”

Bostan claimed that people have stashed around $8 to $10 billion as foreign currency that is not part of the banking system. “A similar value ($8-$10 billion) of money is also being held outside Pakistan by our country’s citizens.”

Bostan predicted that the US dollar will lose its value in the long run. “Excessive sanctions on countries such as Russia, Iran and China would make them switch to currencies other than the US dollar. They may even establish a new common currency,” said Bostan.

“I see the dollar losing its value by 25% in the future. I am telling you the people hoarding dollars will eventually be making losses.”