Pundits warn of increase in goods smuggling
The stabilisation of Pakistan's economy may receive another jolt in the year 2025 as neighbouring country Afghanistan's secret aid has been suspended by the new Trump administration in the US.
Market pundits are warning against smuggling of food and non-food items from Pakistan to Afghanistan. "Out of all worries, we anticipate a huge smuggling of the US dollar to Afghanistan, which can once again create shortage in Pakistan, thereby weakening the rupee further," said Atif Ali, a currency dealer.
Pakistan's economy, already grappling with inflation, debt and stagnant growth, faces an insidious challenge of a thriving smuggling network that bleeds billions annually. From fuel to smartphones, illicit trade undermines local industries, deprives the state of revenue and fuels a parallel 'grey economy' that experts say rivals the formal sector in size.
A joint study of the Small and Medium Enterprises Development Authority (Smeda) and the International Labour Organisation (ILO) estimates its value at approximately $457 billion, accounting for about 40% of the country's gross domestic product (GDP). Furthermore, around 72.5% of the non-agricultural labour force is employed in this informal sector.
Though Pakistan and Afghanistan have a long history of illicit trade, a majority of it comprised non-food items.
"Food item prices in the country are already high despite inflation slipping into single digits; if commodities like wheat, chicken and sugar once again start entering Afghanistan through illegal means, the people of our country will pay the price," said Jellani Khan, a wholesaler of food items. "Our institutes should devise a proper policy, especially to avoid dollar smuggling," he stressed.
Essential commodities such as wheat, urea, sugar, flour and petrol are often smuggled due to price disparities and subsidies in neighbouring countries. These goods typically move through porous borders with Afghanistan and Iran.
Besides, Pakistan is already suffering a huge loss, caused by widespread smuggling, which is not limited to Afghanistan only. A variety of goods are frequently smuggled into and out of Pakistan, driven by factors such as price differentials, tax evasion and regulatory challenges.
These goods, often sold at lower prices, create unfair competition for local manufacturers, who comply with tax and regulatory obligations. This can lead to reduced production in local industries, potentially resulting in job losses.
The Federal Board of Revenue (FBR) reports that nearly 35% of all consumer goods in Pakistani markets are smuggled or untaxed, which distorts competition and discourages foreign investment. This, as per estimates, accounts for an annual loss of up to $5 billion.
In 2023, Pakistan intensified efforts to combat smuggling. In that regard, the Federal Investigation Agency (FIA) launched extensive investigations, targeting money laundering and foreign currency hoarding. Manpower deployment along border crossings was increased to ensure thorough inspections and tracking of goods.
While these measures demonstrate the government's commitment, the long-term effectiveness remains under scrutiny. Industry stakeholders emphasise the need for sustained enforcement and policy reforms.
"We immediately need strong surveillance to stop an expected illegal flight of dollars and essential food items towards Afghanistan; failure of which can once again lead to abnormal price hikes for commodities coupled with exchange rate fluctuations," said Bilal Hanif, a leading businessman from Lahore.
"Currently, our nation is not ready to face another blow as it has already been crushed under inflationary pressure," he added.