Lack of clarity hinders barter trade
Pakistan sees the barter trade as an opportunity to access cheaper energy from Russia and Iran, as well as coal from Afghanistan, without using dollars. photo: file
Traders in Pakistan are expressing their frustration and confusion over the lack of clarity regarding the procedures involved in the recent barter trade announcement made by the government. Pakistan Business Forum (PBF), President, Mian Muhammad Usman Zulfiqar stated that businesses are uncertain about how the system should function, even though the government announced the procedures for barter trade last month.
In early June, the government authorised barter trade with Afghanistan, Iran, and Russia as a means to reduce pressure on rapidly dwindling foreign reserves. The Commerce Ministry released a list of 57 eligible products, including oil and gas, under the Business-to-Business (B2B) Barter Trade Mechanism 2023.
“Even after a month, the initiative has gained little traction,” said the PBF president. Experts and traders blame a lack of clarity and a perceived lack of interest from Afghanistan for the slow start. Union of Small and Medium Enterprises (UNISAME), President, Zulfikar Thaver highlighted the importance of barter trade and border trade in times of scarce foreign exchange. However, he emphasised the need for the government to outline proper procedures and facilitate the process by establishing a thorough mechanism involving local chambers of commerce, border customs, and nominated banks on both sides.
PBF Chairman in Balochistan, Daroo Khan Achakzai pointed out that bartering has existed for centuries but has diminished in today’s globalised world of interconnected economies and modern trade mechanisms. He noted that many traders in the border regions already engage in the practice of purchasing goods from Afghanistan, making payments in Pakistan, and then purchasing goods from Pakistan to be sent back to Afghanistan. However, if the ministry’s SRO introduced any additional facilities last month, they must disclose them, particularly to Russia.
Achakzai believes that the Ministry of Commerce launched the initiative without adequately considering the stakeholders. President of the SITE Association of Industries (SAI), Riaz Uddin criticised the State Bank of Pakistan (SBP) for taking a back seat in provisioning and controlling the supply of foreign exchange, resulting in chaos. He highlighted the importance of clarity from the government regarding whether the SBP would be able to fund the required imports. Without clear direction, smuggling could thrive, allowing smugglers to determine the fate of clandestine imports disguised as barter trade.
The strained ties between Islamabad and Kabul have also impacted the progress of barter trade. According to Afghan Chamber officials, traders on the Afghan side claim to have received no instructions or guidance from the Taliban government or its central bank. Although Pakistan issued the order at the beginning of June, Afghan traders are unable to take any action until they receive clear instructions from the Taliban government in Kabul. The PBF emphasised that all three partners should be enthusiastic about the arrangement, as barter trade with Pakistan is beneficial for everyone involved.
Pakistan sees the barter trade as an opportunity to access cheaper energy from Russia and Iran, as well as coal from Afghanistan, without using dollars. This can help alleviate the strain on Pakistan’s foreign exchange reserves. Thaver emphasised the need for the government to make urgent decisions and implement initiatives such as the gas pipeline and currency swap agreements with Iran, as well as barter trade with neighbouring and interested countries.
Official barter trade can also help reduce smuggling across Pakistan’s borders with Iran and Afghanistan, which has resulted in significant losses in foreign exchange. As recently as last year, Iran illegally imported 35% of Pakistan’s diesel. Pakistan has recently launched a crackdown on the smuggling of essential goods, including flour, wheat, sugar, fertiliser, and others, to Afghanistan.
It is worth noting that Pakistan’s primary export markets are the United States and the European Union, while its primary import markets are China and the Middle East. However, the three countries involved in the barter trade agreement were not among Pakistan’s top 20 export destinations in the 2021-2022 fiscal year, and Russia was not among the top 20 import sources.
Published in The Express Tribune, July 9th, 2023.
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