The Smuggling Dilemma

Pakistan’s economy has been hit hard by the smuggling of petroleum products from Iran, leading to a staggering loss of revenue.

By Qamar Bashir

In an extraordinary development, Pakistan’s Army Chief has recently taken a proactive role in addressing the nation’s pressing economic challenges. This departure from the norm, where civilian authorities typically handle such matters, was marked by meetings with prominent businessmen from Karachi and Lahore.

During these dialogues, the business community shared their concerns and presented a multitude of suggestions and demands aimed at salvaging Pakistan’s sinking financial ship. These conversations illuminated the dire economic situation in the country and highlighted a central issue: the widespread smuggling of essential commodities and currency through land routes to Afghanistan and Iran.

Restricting currency exchange activities to regular banks would curb hoarding of dollars and unauthorized sales to foreign currency dealers, effectively stemming smuggling.

It is noteworthy that the Army Chief’s active engagement in combating smuggling is unusual, as this issue primarily falls under the purview of civilian institutions such as Customs and Excise and the Federal Investigation Agency (FIA). However, the business community pointed out that the military, with its auxiliary units like the Frontier Corps (FC), Border Security Forces, and Coast Guard, plays a significant role in maintaining control over the routes connecting Balochistan, Punjab, and Khyber Pakhtunkhwa (KP) provinces with neighboring countries such as Iran, Afghanistan, and India.

Furthermore, Pakistan’s border areas with Iran, Afghanistan, and India are patrolled and secured by the Border Security Forces, exclusively manned by the army. The Coast Guard, established to combat illegal smuggling of goods through sea and maritime routes, also falls under military jurisdiction. Border checkpoints, controlled by the army and the Inter-Services Intelligence (ISI), ensure that nothing passes through without their knowledge, information, and consent.

The National Logistics Cell (NLC) conducts bulk trade primarily unchecked between Pakistan, Afghanistan, China, Iran, and Central Asia. Additionally, the Narcotic Control Forces are led by the army, while Rangers focus on curbing illegal activities within urban centers.

The challenge is immense, and addressing Pakistan’s economic woes requires concerted effort and accountability at all levels.

The Army Chief, during these meetings, lent a patient ear to the business community’s grievances. He maintained a friendly demeanor, emanating hope and determination in his eyes, while his voice exuded passion and resolve. His gestures conveyed grit and tenacity as he promised to establish a task force on smuggling to recommend a comprehensive plan of action.

As discussions continued, it became evident that meaningful steps were needed to hold those complicit in smuggling accountable. Smugglers have been bleeding the country’s economy, siphoning off essential resources, and undermining the nation’s prosperity.

The National Logistics Cell (NLC) conducts bulk trade primarily unchecked between Pakistan, Afghanistan, China, Iran, and Central Asia.

A unique perspective on smuggling emerged from an individual with firsthand knowledge. This smuggler revealed that he regularly loaded his vehicle with cash and traveled along smuggling routes, distributing sizable sums to checkpoints based on the number of trucks that had passed through. This system allowed for the unhindered movement of goods, with commodities flowing into Iran and Afghanistan, while contraband such as petroleum products, plastic kitchenware, dry fruits, electronics, and fruits came back into Pakistan.

Former FBR Chief Mr. Shabbar Zaidi shared an illuminating anecdote in an interview. As he tightened the noose around smuggling during his tenure, he received a phone call from a southern army commander instructing him to halt these efforts. The fear was that clamping down on smuggling would provoke a law and order situation in Balochistan, a province heavily reliant on smuggling for income.

Narcotic Control Forces are led by the army, while Rangers focus on curbing illegal activities within urban centers.

The economic consequences of smuggling are profound. Afghanistan heavily depends on Pakistani exports, with a substantial portion of its daily requirements coming from Pakistan. This translates to billions of dollars annually, desperately needed at home. Alarmingly, a significant chunk of these profits ends up lining the pockets of security agencies tasked with preventing currency smuggling.

Similarly, Pakistan’s economy has been hit hard by the smuggling of petroleum products from Iran, leading to a staggering loss of revenue. Diesel sales have plummeted by over 40%, while overall oil product sales have seen a 46% drop, amounting to 8.8 million barrels in April compared to the previous year. Oil & Gas Regulatory Authority (OGRA) reports that around 4,000 tonnes of smuggled fuel per day result in a monthly revenue loss of approximately 10.2 billion rupees, with an annual loss of Rs. 122 billion. Sadly, a significant portion of these losses directly benefits anti-smuggling security forces.

Amid these economic challenges, hopes were raised with promising figures of foreign direct investment (FDI) totaling over $100 billion from countries like Saudi Arabia, the UAE, Kuwait, and Qatar. These pledges aimed to boost morale within the business community. However, Mr. Shabbar Zaidi cautioned that FDI alone cannot alleviate the immediate foreign currency shortage. To bridge the current account deficit, Pakistan requires hard cash, a resource that is difficult to come by given the nation’s fiscal and economic state.

Zaidi emphasized that investors, whether from Saudi Arabia or elsewhere, seek safe and profitable returns on their investments. With volatile exchange rates and economic instability, predicting returns on investment becomes challenging, discouraging significant inflows of FDI.

In light of these challenges, Zaidi proposed a series of crucial interventions like zero tolerance for smuggling: The foremost priority should be eradicating smuggling and holding those responsible accountable.

Early Business Closures: Enforcing business closures by 6 pm could lead to substantial foreign exchange savings by reducing imports of expensive LNG, furnace oil, diesel, and imported coal necessary for power plants.

Cessation of Rs. 5000 Notes: Phasing out Rs. 5000 notes would help reduce dollarization of the economy.

Currency Exchange Control: Restricting currency exchange activities to regular banks would curb hoarding of dollars and unauthorized sales to foreign currency dealers, effectively stemming smuggling.

Limits on Vehicle Imports: Implementing restrictions on manufacturing and importing vehicles with engine capacities exceeding 2000cc would reduce petroleum product consumption, preserving valuable foreign exchange.

While meetings between the Army Chief and the business community offer a glimmer of hope, it’s essential to remember that previous discussions failed to yield substantive results. The challenge is immense, and addressing Pakistan’s economic woes requires concerted effort and accountability at all levels. Rather than conducting extensive economic surveys, the revival of information technology-based systems like the track and trace software may provide more precise insights into tax collection and business operations.

As the Army Chief has consistently emphasized, hope, not despair, is the solution, and action in the right direction is the way forward. With his exemplary track record and dedication, he represents a beacon of hope in a country grappling with inflation, soaring commodity prices, and burdensome utility bills.

The path ahead may be challenging, but it is the collective responsibility of all stakeholders to steer Pakistan towards a more stable and prosperous future.

– The writer is the former Press Secretary to the President of Pakistan, former Press Minister to the Embassy of Pakistan to France and former MD, SRBC.