As Pakistan’s exports to Afghanistan have declined after the Taliban took control of Kabul in August 2021, the government made a crucial move on Tuesday to enable trade in all products to Kabul in the rupee via land routes due to the lack of tradable currency through banking channels.
The action is intended to import Afghan coal for Pakistan as it is experiencing an energy crisis due to a lack of foreign reserves to purchase liquefied natural gas (LNG) or oil on the international market to fuel its power plants.
The Economic Coordination Committee (ECC) approved summary of the Ministry of Commerce to amend paragraph 3(1) of the Import Policy Order 2022 to permit the import of goods of Afghan origin against the Pak rupee and without the requirement of EIF forms for a period of one year, subject to the condition that Afghan exporters will provide a Certificate of Origin issued by Afghan Customs evidencing that the goods have originated from Afghanistan.
The government employs EIF as a tool to monitor the inflows and outflows of foreign remittances and to inspect the goods that are imported without the use of foreign currency through the State Bank of Pakistan. Currently, the government has permitted exports of 24 products to Afghanistan in rupee, including fruits, vegetables, and cement.
On the other hand, Afghanistan has remained the third largest export destination for Pakistani goods, but the trend has shifted in recent years. Exports of Pakistan to Afghanistan decreased by 30 percent to $717.53 million in 2021-22 from $1.018bn in 2020-21.
Since August 15, 2021, when the Taliban took over and declared their control over Afghanistan, Islamabad has granted Kabul, among other humanitarian aid, duty and tax exemptions on fresh and dried fruits and vegetables, as well as a variety of other products.
As a consequence of this decision, the import of goods from Afghanistan increased at an unprecedented rate. Since the Taliban took over the government, Pakistan’s trade surplus with Afghanistan has changed into a deficit, and imports have increased significantly.
Looking at the statistics, in FY22, the imports from Afghanistan increased by 37 percent and reached $801.28m compared to $583.59m over the previous year. In the year 2019-20, imports from Afghanistan were just $470.9m.
According to the data, significant imports from Afghanistan cause dollar outflows and put undue pressure on the currency. Furthermore, dollar smuggling is thought to be a factor behind continued trade in the greenback.
Unfortunately, the government’s decision to enable the export of some commodities in rupees did not have the anticipated outcomes, as exports fell precipitously in one year.
At present, the government has already permitted exports of rice, fish and fish products, poultry, meat and products, sugar confectionery and bakery products, fruit, nuts and other edible parts of plants, oilcake and other solid residues, vegetable materials and vegetable waste, salt, cement, pharmaceuticals, matches, textile and textile articles, building stone, surgical instruments, dairy products are allowed in Pakistan currency.
On Jan 22, Pakistan permitted the export of another 14 products to Afghanistan in rupees using land routes. The decision has assisted the Taliban-led state to continue importing food from Pakistan until the West accepts their rule.
No country has officially recognized the Taliban government, which has meant international financial assistance has dried up while Afghanistan faces a humanitarian and economic crisis.
In the absence of direct foreign assistance, the Afghan Taliban has recently increased coal exports to Pakistan in order to gain more revenue from its mining sector. Also, Kabul has lately hiked sales duties and rates.