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EditorialStemming the flight of dollars

Stemming the flight of dollars

Aside from a robust, viable economic plan, the government desperately needs dollars. The illicit dollar outflow is one of many reasons that have put great pressure on Pakistan’s exchange rate in recent months, contributing to market dislocation and resulting in various exchange values in the interbank and open markets. There are no two ways about it: the country’s illegal money flows to Afghanistan must be stopped.

The arrest of three Gulf-bound travellers and the recovery of $60,000 from them, however, reveal that the dollar outflow is not limited to Afghanistan. Pakistan must improve its border and port restrictions to prevent the dollar from fleeing the nation in any direction.

Though the Shehbaz Sharif administration claims credit for “rescuing” the country from bankruptcy, the central bank’s tendency to progressively deplete its foreign exchange reserves is increasing, and news of Pakistan defaulting is regularly circulated. There is concern that efforts to pull the country out of the economic quagmire may be ineffective. The assessments prepared on a daily basis by the foreign exchange business sector warn that the government alone would not be able to pull the country out of a catastrophic crisis; political and state players will need to work together to develop strategies.

The government and commercial banks’ foreign exchange reserves are currently $12 billion. There is still a risk of Pakistan defaulting in light of the ambiguous information regarding the IMF’s ninth review. It should be emphasised that the IMF’s ninth review is underway, and negotiations between the international body and Pakistani officials for the release of $1.18 billion are expected. The worrying news is that Afghan traders are paying up to Rs30 more than the open market to acquire Pakistani rupees to the dollar, resulting in a daily flight of $2 billion to international destinations. Since the US froze the war-torn country’s reserves following the Taliban takeover last summer, there has been a constant, large outflow of money from Pakistan to Afghanistan. For years, Afghanistan had been a significant exporter of cash pumped into its economy by the US to Pakistan. Thus, as the Exchange Companies Association of Pakistan underlined, the turnaround of Afghan fortunes has had a significant impact on Pakistan’s ailing external economy.

According to the organisation, Pakistan’s foreign currency reserves have been drained by the large-scale, illegal outflow of dollars to Afghanistan, as well as other widely publicised causes such as trade and current account deficits and dwindling multilateral and bilateral inflows. The unrestricted flow of American dollars to Afghanistan has triggered a problem in Pakistan. The fact that the State Bank limitation limiting the annual personal foreign exchange allocation for travellers to $6,000 has not succeeded in stopping this unlawful flow of foreign exchange highlights the corruption and inadequacies that characterise Customs supervision at the Pakistan-Afghan border. Surprisingly, no administrative step implemented in the last year to deter dollar smuggling across the country’s western border has yielded the anticipated results, with the exception of the rare arrest for attempting to withdraw huge quantities of hard cash.

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