ISLAMABAD: Fearing disruptions in export proceeds, the government has decided in principle to look into various options including allowing exports of additional items in local currency to Afghanistan on land routes owing to non-availability of tradable currency through banking channels.

As part of the facilitation, the State Bank of Pakistan (SBP) has extended the facility of cash convertible currencies as export proceeds for settlement of export to Afghanistan and Central Asian States, which expired on Oct 15, 2021. The facility is now extended until Dec 31, 2021.

Under the facility, authorised dealers will accept cash convertible currencies brought over their counters as export proceeds without asking for customs declaration for passengers. On July 2, the SBP issued a circular revising the procedures and made it mandatory for exporters to show evidence of the dollars at the time of issuing Form E.

The change was resisted by the stakeholders including exporters, with the result the SBP put the requirements in abeyance until Oct 15, 2021 which was further extended to Dec 31, 2021.

Facility of cash convertible currencies as export proceeds extended to Dec 31

To facilitate exports of perishable products, the government has allowed exports of fresh fruits, fresh vegetables, meat and fish in Pak rupees to Afghanistan. The government has now decided to add another two items — rice and pharmaceutical products — to the list for exports to Afghanistan. “The proposal to include additional items in the list has been taken up with the SBP,” an official source confirmed to Dawn. He said the final decision in this regard will be taken by the SBP as foreign exchange regulations come in the purview of the central bank.

Two other proposals are also under consideration to allow trade with Afghanistan through land routes in local currency or currency swap agreements. The SBP has also devised a payment settlement mechanism to settle the trade transactions between Pakistan and Iran in the year 2017.

According to an official, the government will then have to make amendments to Pakistan’s export policy order. Similarly, the SBP will also amend the forex exchange manual in case allowing trade in local currency or going for a currency swap agreement.

In 2002, the then government of President Pervez Musharraf decided to facilitate exporters and get more market for Pakistani products in Afghanistan. As a result, SRO-31 of 2002 was issued to allow exports against the Pak rupee. Exports to Afghanistan stood at $386.67 million in 2002-03.

As a result of that decision, Pakistan’s exports to Afghanistan rose marginally to $2.5bn in 2014-15. Statistics of exports proceeds suggest that Afghanistan has emerged as the second-largest export destination for Pakistan after the United States.

However, this facility was then discontinued on pressure from the external and internal sides.

At that time the decision of export in Pak rupee was not challenged from any quarter as there was no requirement of Financial Action Task Force, the global watchdog to monitor money laundering and terror financing.

During a recent visit of Foreign Minister Shah Mehmood Qureshi to Afghanistan among other issues trade in local currency also came into discussion. One of the major reasons is that Afghan imports through transit trade have also seen a steep decline since the Taliban took over control of Kabul in August.

A senior Customs official said the drop in transit trade might be due to non-availability of banks and dollars to source imports under the transit trade. Pakistan has facilitated imports of fresh fruits, vegetables from Afghanistan and imports posted a double digit growth since August.

On August 15, the Taliban took over Kabul and declared its rule over Afghanistan. Pakistan’s imports from Afghanistan have seen a visible increase in the first two months of the current fiscal year. The import value from Afghanistan stood at $18.960m in July-August 2021 against $9.514m over the same months last year, showing an increase of over 99pc.

This increase in the imports from Afghanistan was the outcome of Islamabad’s policy to continue trade with Kabul and extend further facilitation removing duty on import of fruits from Afghanistan.

The value of Pakistan’s exports value to Afghanistan stood at $95.672m between July and August 2021 against $123.785m over the corresponding months of last year, indicating a decline of 22.7pc.

It shows that Pakistan’s exports to Afghanistan are on decline. Imports from Afghanistan posted an impressive growth since the Taliban took over control of the country.

Published in Dawn, October 24th, 2021