LRIP

Pakistan-Afghanistan Trade Ties

September 11, 2021

Pakistan may trade with Afghanistan in rupees which could help to reduce the country’s growing current account deficit. Shaukat Tarin, Minister of Finance and Revenue, told the Senate Standing Committee on Finance that trade with Afghanistan would now be in rupees because the new government wanted to conserve its dollar reserves. In response to the news, Pakistan Businesses Forum Vice President Ahmad Jawad said that dealing in rupees was a good move for Pakistan’s importers as well.

“In a currency swap agreement, countries that buy from each other pay in their respective currencies at a fixed exchange rate rather than trading in US dollars. This allows them to save foreign currency and strengthen their currencies.” He stated that the government should form a task force comprised of representatives from the commerce ministry, the State Bank of Pakistan, and the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) to compile a list of countries with whom Pakistan could consider trading in rupees.

“While it is negative in terms of US dollar inflows into Pakistan, it is not a significant amount,” Topline Securities economist Atif Zafar said. Furthermore, it would strengthen diplomatic relations with Afghanistan, which is especially important at this time. “At a time when the economy desperately needs a boost, Pakistan can capitalize on the current situation by expanding the scope and depth of economic engagement with Afghanistan,” former FPCCI president Mian Anjum Nisar said.

“Our economy is at a crossroads in the aftermath of a dramatic drop scene of the US-led war in Afghanistan with the return of the Taliban to power, but in this crisis, Pak-Afghan trade can be multiplied massively if irritants are removed and traders are facilitated.” According to Nisar, Afghanistan’s economy will contract by 1.9 percent in 2020. The country has the region’s second-lowest per capita income. Things are in flux, and there is a good chance that the situation will worsen as the aid flow is disrupted. After all, aid accounts for 80 percent of Afghanistan’s budget.

“It would serve us better if we stayed low and did our homework to deal with all possible scenarios in Afghanistan, as logistics facilities, such as adequate weighing bridges and quick customs clearance, can shorten travel time, reduce waste, and increase overall trade to the benefit of the two countries and their people,” he added. “I think trade with Iran and China should be in rupees as well, because we import a lot from China,” Jawad said.

He went on to say that the trade and industry had no idea what the central bank’s required real exchange rate was or where the rupee’s devaluation would end. Though exporters would benefit from the depreciating rupee in their export proceeds, the overall economy would suffer as costs rose, eventually affecting consumption, which was the main wheel that drove the economy.

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