A recent report by ACE Money Transfer, a UK-based company, has unveiled that Pakistan's economy is bleeding a staggering $23 billion per year due to illicit activities, including the black market and smuggling of United States Dollars in key sectors.
These covert operations, encompassing black market currency trading, oil smuggling, gold smuggling, and violations of import controls, severely undermine Pakistan's economic stability. They distort exchange rates, resulting in currency devaluation, which, in turn, can trigger inflation as the cost of imported goods rises. Additionally, these activities erode the effectiveness of monetary policies and diminish confidence in the financial system.
The report emphasizes that these activities not only lead to a loss of government revenue but also foster a shadow economy, making it challenging to monitor and regulate economic transactions.
In recent years, Pakistan has grappled with significant fluctuations in its exchange rates, intensifying its economic challenges. A robust crackdown on these illicit activities has partly stabilized the interbank rate at Rs282.62 per dollar. Experts underscore the critical need for a committed effort to eliminate smuggling in key sectors to ensure Pakistan's economic recovery.
"The most crucial aspect is governance; an improvement in governance will enhance the overall financial and economic environment, bringing stability to our financial markets and fostering economic and financial growth in the country," stated Rashid Ashraf, CEO of ACE Group of Companies, in an interview with the Express Tribune.
Ashraf stressed the necessity of advanced surveillance techniques and technologies to secure Pakistan's physical borders and crossing points, given its extensive border sharing with Iran and Afghanistan, as well as its sea border with Gulf countries.
The report indicates that Pakistan suffers an approximate loss of $150 million per month due to dollar smuggling, culminating in an alarming annual figure of around $2 billion.
Similarly, smuggled Iranian oil commands a significant share, estimated at over 30%, of Pakistan's diesel market. Approximately 10 million liters of diesel and two million liters of petrol are smuggled into Pakistan daily from Iran, costing the government over $1 billion annually.
Gold smuggling presents another formidable challenge. The report unveils that only 1.32% of the significant gold market value of Rs2.2 trillion ($7.1 billion) is officially declared to tax authorities. This stark underreporting results from an annual smuggling of approximately 80 tonnes of gold into the country, out of a total annual consumption of 160 tonnes. With regularization, this market could contribute a minimum of $500 million annually to government revenues.
The report also sheds light on the unintended consequences of import bans, despite their well-intentioned implementation. These bans have given rise to a shadow economy, where smuggling, misreporting, and product substitution have become common methods to bypass import restrictions. This has disrupted economic activity on a large scale and has the potential to significantly increase unemployment figures, with projections exceeding 2 million people by the end of 2023.
Ashraf further emphasized another critical issue, where payments for imports to Pakistan are made from the UAE. UAE-based companies facilitate payments from the UAE to other countries, such as China, on behalf of Pakistani companies and importers. He highlighted the need for the Pakistani government and the State Bank of Pakistan (SBP) to collaborate with their UAE counterparts to control this practice. Ashraf explained that if these payments were made within Pakistan's borders, they would contribute to the country's foreign reserves.
"Any imports should only be financed from within the borders of Pakistan," he suggested.
