Millions in US dollars smuggled into Afghanistan from Pakistan daily

Millions of dollars are being smuggled into Afghanistan from Pakistan every day, providing some support for the fragile economy.

Muhammad Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan, told Bloomberg that traders and smugglers bring as much as $5 million across the border daily, which more than covers the as much as $17 million that Afghanistan’s central bank injects into the market each week.

The illicit cash flows show how the Islamic Emirate of Afghanistan (IEA) is evading sanctions after their 2021 takeover of the country, Bloomberg reported.

For Pakistan, however, it’s contributing to the depletion of foreign reserves and adding to the downward pressure on the rupee as the currency tumbles to record lows and the economy teeters on the edge of collapse.

“Currency is being smuggled without any doubt,” Paracha told Bloomberg. “This has become quite a lucrative business.”

“Afghanistan has about a $10 to $15 million requirement on a daily basis,” said Khurram Schehzad, chief executive officer at Alpha Beta Core Solutions Pvt Ltd., a financial consultancy in Karachi. Half of this is estimated to come from Pakistan, he said.

Da Afghanistan Bank, the country’s central bank, has enough dollars in reserve to support the economy, the bank’s spokesman Haseeb Noori told Bloomberg.

However, some of it comes from the UN, which has been providing about $40 million in humanitarian aid each week since late 2021.

This cash is transported by air to Kabul each week and much of it then needs to be converted into afghani after it arrives. So even though the aid doesn’t directly benefit the IEA, the dollars ultimately end up in the central bank’s coffers, Bloomberg reported, adding that the UN wasn’t immediately available to comment.

According to the report, the afghani has gained about 5.6% against the US dollar over the past year through Monday, one of the strongest performances of any currency in the world.

This while Pakistan’s rupee has lost about 37% against the US currency over the same period, one of the largest declines. It fell about 10% in one day in late January, the biggest drop in at least two decades, as the crisis-stricken government relaxed its grip over the exchange rate in a bid to win much-needed loans from the IMF, Bloomberg reported.

However, according to Bloomberg, the smuggling of US dollars into Afghanistan really took off in the middle of last year after Afghanistan increased coal exports to Pakistan.

In addition, it has been boosted by the IEA’s ban on the use of Pakistan’s rupee as legal tender in Afghanistan, which forces exporters to trade in dollars and bring the US currency back to the country, the officials told Bloomberg.