Jakarta, CNBC Indonesia – Thousands of United States (US) dollars continue to be smuggled from Pakistan to Afghanistan every day. Smuggling is rife because the Afghan economy is under great pressure after the Taliban regime took control of the country.
As is well known, the Taliban regime has regained control of Afghanistan since August 2021. The Western world rejected this regime and decided to book the Afghan government’s gold reserves abroad.
The decision exacerbated the country’s economic crisis, which has been dubbed the “Graveyard of the Rulers”.
Muhammad Zafar Paracha, general secretary of the Pakistan Association of Foreign Exchange (forex) Companies, said traffickers and smugglers carry $5 million worth of smuggled money or around Rp.75.47 billion (exchange rate of US$1 = Rp.15,095) across the border every day.
This figure is greater than the $17 million in liquidity that the Central Bank of Afghanistan injects into the market each week.
This dark stream shows how the Taliban evaded sanctions after they took over the country in 2021.
The smuggled had a negative impact on Pakistan, the smuggled not only reduced their foreign exchange reserves (cadev) but also contributed to increasing pressure on the Pakistani rupee. Moreover, the rupee currency is in freefall to its lowest level after their economy is on the verge of collapse.
“Currency continues to be smuggled without a doubt. It’s become quite a profitable business,” Paracha said by telephone, quoted by Bloomberg.
As the Taliban retook Kabul after two decades of “waste” in 2021, the US and Europe blocked more than $9 billion in the Central Bank of Afghanistan’s foreign exchange reserves.
This step was taken to anticipate the use of Cadev by the Taliban militant group for terrorism.
Under pressure from the United Nations (UN), the US agreed to release half of it to help the economy. However, the decision was suspended after the Taliban banned Afghan women from getting an education or working.
Seventeen months after the Taliban came to power, Afghanistan is still in a dire state and the human rights situation continues to deteriorate.
The United Nations warns that more than half of the population faces an acute crisis of hunger during the harsh winter. However, money from neighboring Pakistan helped the regime to survive.
“Afghanistan has needs of $10 to $15 million per day,” said Khurram Schehzad, CEO at Alpha Beta Core Solutions Pvt Ltd., a financial consultancy in Pakistan’s commercial capital, Karachi.
He added that half of this need is estimated to come from Pakistan. Afghanistan Central Bank spokesman Haseeb Noor said they have enough dollar reserves to support the economy.
Some of these reserves come from the United Nations, which has been distributing around US$40 million in humanitarian aid each week since last year.
Given Afghanistan is cut off from the global banking system, this money is sent in cash to Kabul and must be converted into afghani, the local currency, upon arrival.
Although the aid did not immediately enrich the Taliban, the dollars eventually made their way into the central bank’s coffers. The United Nations has yet to comment on the fund.
In addition to UN funds, the Taliban regime also collects US dollar coffers from customs tariffs some of which are collected in dollars.
“The UN is actually supporting the afghani currency by providing dollars to the market and buying afghani in return. The afghani demand is actually being created by the UN and other sources including dollar smugglers,” said Torek Farhadi, a former adviser to the International Monetary Fund in Washington.
In the past year, afghani strengthened by around 5.6% against the dollar on Monday (06/02/23), which made it one of the strongest performing currencies in the world.
The Afghan currency recovered to around 89.96 per dollar after hitting an all-time low of 124.18 in December 2021, months after the Taliban returned to power.
In contrast, the Pakistani rupee has lost about 37% against the US currency over the past year. This weakening is one of the largest compared to other currencies.
The rupee even fell by about 10% in a day at the end of January, the biggest drop in at least two decades.
The rupee plunged as the government grapples with a crisis after it relinquished control of the exchange rate to win a much-needed loan from the International Monetary Fund (IMF).
Pakistan is also struggling with the effects of deadly floods, soaring inflation, political unrest, and foreign exchange reserves which fell to US$ 3.09 billion in the week ending January 27 2023. This position is the lowest in nine years.
According to officials at the Afghan Ministry of Finance, smuggling activity increased in the middle of last year after Afghanistan increased its coal exports to Pakistan.
The Taliban’s ban on the use of Pakistani rupees as legal tender in Afghanistan has also been a stimulus for smuggling activities.
The reason is, it forces exporters to trade in dollars and bring the currency back to the country concerned.
“Our market will definitely be affected when they buy dollars from the local market,” said Jameel Ahmad, Governor of the Central Bank of Pakistan in a brief interview before a press conference on January 23, 2023 on the country’s interest rate policy.
Pakistan is experiencing pressure in the energy sector spurring barter trade for Afghan coal.
Haji Mohammad Rasool, one of the traders who exported coal to Pakistan said Pakistan was its biggest trading partner.
It buys coal in afghani and sells it in rupees at a marked up price, converts the rupees into dollars and sends it back to Afghanistan via the traditional Hawala system to transfer funds.
Rasool explained that getting dollars is difficult in Pakistan which is also experiencing a financial crisis.
Because of this, he uses black markets near the border in places like Peshawar, where he is willing to pay up to 10% more than the benchmark price.
“Almost all traders do the same. We are “forbidden by the Taliban to bring rupees back into the country,” he said
The Taliban encouraged everyone to carry cash in dollars, but they cut the maximum dollar transfers allowed out of the country to $5,000, said Ahmad Wali Haqmal, a finance ministry spokesman.
According to Paracha of Pakistan’s currency trading group, the problem lies in the “mistakes” of Pakistan’s immigration, trade and border control policies. Thousands of people cross the border every day without visas, he said. And many of them carry dollars.
