The State Bank of Pakistan (SBP) has withdrawn facilities for exporters of Afghanistan and Central Asian Republics (CARs) in response to the growing dollar demand, a situation that has compelled foreigners to conduct business solely through more onerous traditional methods and banking channels.
As a result of this decision, Pakistan’s trade with Afghanistan, and perhaps a few of Central Asian countries, is expected to be severely impacted as inflationary pressures take their toll.
Previously, US dollars could be purchased from Pakistan through Afghan exporters and then presented at Customs counters for import and export clearances. However, after adopting new regulations in light of the ongoing inflationary burden, the Central Bank has revoked all facilities with effect from December 13, 2021.
The SBP gave instructions to the Presidents/Chief Executives of banks and all authorized foreign exchange dealers in relation to exports to Afghanistan and Central Asian Republics (CARs) via land routes, according to a circular released by the SBP on December 7, 2021.
A top Customs officer told a national daily that there are three key developments relating to the latest SBP circular. The first is that the trade of perishable commodities will be Rupee-denominated. Second, travelers now must present convertible currencies and Goods of Declarations (GDs) for import and export, but the currency must include legal declarations. Third, the practice of traders purchasing dollars on behalf of Afghan exporters from the open market has been discontinued in order to relieve pressure on the exchange rate.
Given the looming and unpleasant fiscal repercussions posed by the Bank’s decision, bilateral trade could come down to precarious levels, severely reducing trade volume and conversely piling more pressure on the Pakistani Rupee.
Notably, Pakistan’s exchange rate is currently under substantial pressure due to the growing current account deficit, a lack of dollar inflows, and increased dollar demands. The Pakistani Rupee has been steadily losing ground against the greenback and looks on course to fall below Rs. 180 in the open market.
