Afghani Dollar Smugglers – a growing concern for Islamabad

The recent unearthing of unabated smuggling of US dollars to Afghanistan using orange crates has sent ripples among the policy makers in Islamabad. As the country is facing one of the worst forex crisis with just USD 6.7 billion in reserves sufficient for import cover for barely a month, Islamabad was not left with enough reserves to meet USD 8.5 billion external debt repayment due in January-March 2023. Pakistan’s porous borders and international airports have turned into dens of smuggling by Afghan smugglers. 

The smuggling figure is expected to be very high in value and many observers in Pakistan view that hard-earned dollars are smuggled out, adversely affecting Pakistan.

A combination of a suspension of foreign aid, freezing of government assets and international sanctions on Taliban have plunged Afghanistan into a severe foreign exchange crisis. The full-blown economic crisis is prompting the Afghani smugglers to tap US dollar in neighbouring Pakistan. The reported incidents of dollar smuggling have been on rise and Pak customs authorities made about 100 seizures involving foreign currency equivalent to USD 4.2 million.

Smuggling through the Pak-Afghan border is not new. Apart from US dollars, Pak imported urea and wheat are also being smuggled into Afghanistan which has chronic shortage of these items. The misuse of Afghan Transit Trade (ATT) continues as all those items on which Islamabad slapped Regulatory Duty were being routed to Afghanistan under the guise of ATT.

Policy makers in Pakistan are alarmed by the failure of the enforcement agencies to put an end to currency and goods smuggling. Finance Minister Ishaq Dar recently chaired an emergency inter-ministerial meeting to review the smuggling of the US currency along with imported wheat and fertilizer to Afghanistan. During the meeting, Dar asked relevant authorities to devise a robust and proactive roadmap to curb the cross-border smuggling to safeguard Pakistan’s economic and financial stability.

In desperation, the Finance Minister wondered “Can we afford this happening” and urged the law enforcement agencies to catch “big fishes” instead of focusing on smaller ones. In response within the 24 hours of the meeting, customs caught a person smuggling USD 100,000.

One of the important reasons for smuggling of dollars is that the gap between interbank and the open market rate is widening and actually has given rise to grey market where the US dollar is traded at a premium of almost 10% the official interbank rate and that too without any legal formalities.

Another reason is that illegal rupee-dollar trade remains unchecked in Pakistan. Islamabad is buying coal from Afghanistan in rupees and these rupees come back to Peshawar. Thereafter, the rupee is converted into the US dollar at a premium of Rs. 15 – 20 by smugglers.

Involvement of Pakistani law enforcement agencies in this racket is another nuisance for the authorities. At the Torkham border, a policeman was caught by the Frontier Constabulary enabling smuggling of USD 50,000 recently.

There are legal loopholes too. Customs authorities cannot register criminal cases against smugglers and their actions are only limited to seizure of the currency. Though customs authorities nabbed a person at Islamabad airport for carrying Saudi currency equivalent to USD 6,500, he had to be set free as the customs law does not permit criminal cases below USD 10,000. The central bank recently lowered the outbound flow of the currency to USD 5,000 per person, but customs law was not updated accordingly.

Afghanistan has always more or less piggy-backed on Pakistan’s economy but never been a cause of concern for the authorities under normal circumstances. However, the prevailing economic condition in Pakistan is very fragile and this has prompted it to take note of these unabated smuggling of dollar and imported commodities into Afghanistan.

Smuggling along Pak-Afghan border has been taking place in normal times as well, especially sugar and other household items routed to Afghanistan. Due to porous and unmanned Af-Pak border, Islamabad has always faced a daunting challenge in controlling the illegal operations of smugglers who take advantage of unregulated trade in cigarettes, livestock and food items, including wildlife and petroleum products in addition to currency.

Islamabad bears the consequences of economic crisis and shortage of essential goods in Afghanistan. Inability to tackle Afghan criminals is also affecting the economic fabric. Unlicensed currency operators in Pakistan play a major role in facilitating movement of criminal proceeds generated through fraudulent invoicing, among others. According to some media reports, the volume of the hundi and hawala business alone crossed USD 15 billion, way back in 2015.

After the collapse of the Ashraf Ghani’s Government in Afghanistan in 2021, Islamabad hoped to gain a “strategic depth” and its own sway in Kabul. However, tensions between the Afghan Taliban and the Pakistani military have grown in recent times due to factors such as Taliban’s refusal to accept the ‘Durand Line’ as the international border, activities of the Tehreek-e-Taliban Pakistan (TTP) and border skirmishes that have killed several Pakistani personnel.

Observers point out that the burden of feeding two countries is Islamabad’s own creation as its ambitions in Kabul went awry since they were not based on maximization of economic or human welfare, but on prejudices and narrow strategic intent.