Amid dollar crunch, Pakistani importers head towards grey market for transaction

Extreme flooding may no longer be a problem for Pakistanis, but acute food shortages and dwindling foreign exchange reserves have left Pakistani food importers vulnerable to gray market payments.

Also read: WHO warns of disease in flood-hit areas of Pakistan

On the gray market, goods are traded through markets not authorized by the manufacturers. Many Pakistani food importers from Afghanistan and Iran now rely on the gray market for their payments as they are not allowed to buy dollars from banks or bureaux de change.

Also read: Floods in Pakistan: A third of Pakistan is under water, worst floods in its history

Due to heavy rains and extreme flooding, many of its crops were destroyed. This has left the nation facing acute shortages of tomatoes, onions, potatoes and other foods.

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Also read: Pakistani inflation hits 47-year high before floods take full effect

To address the growing food shortages in the country, the Pakistani government has allowed these foods to be imported from neighboring countries. However, the government has made no provision for providing dollars to make payments for these imports.

Currency traders and importers told PTI that they were asked to opt for a barter system with their Afghan and Iranian counterparts by exporting foodstuffs available in Pakistan. A barter transaction is the exchange of goods or services for other goods or services.

It was noted that due to the presence of Afghans in Khyber Pakhtunkhwa, import deals in local currencies with Kabul were possible, Peshawar Chamber of Commerce and Industry sources told PTI.

But Afghan exporters are still interested in payments in US dollars. They also asked to make payments through Dubai to take advantage of the Hundi or Hawala system. Hawala systems allow two people to perform a money transaction without actually moving the money. It is an informal money transfer system.

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This is the main reason most importers make payments to Afghan sellers in cash or through Dubai, Malik Bostan, a top foreign exchange trader, told PTI.

“The government has not arranged dollars for imports from Kabul, while importers are prohibited from buying dollars from stock exchange companies or banking channels. This applies to both Iran and Afghanistan,” Bostan was quoted as saying in a report by Dawn newspaper. He said in both cases dollars were being sent abroad from Pakistan “when we desperately need them”.

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Zafar Paracha, another currency trader, said the Afghan currency is only available in Peshawar, where it can be exchanged or bought and sold in Pakistani rupees and Afghanis.

With Pakistan’s currency steadily depreciating due to economic woes, most Afghan exporters are unwilling to trade Pakistani rupees.

“It is the government’s illogical decision not to provide dollars for imports from Iran and Afghanistan while the devaluation of the rupee is now permanent,” Paracha noted.

Because the government hasn’t made provision for monetary transactions on imports, traders have to resort to other channels, Zafar Paracha said. According to stock exchange companies in Karachi, Afghans are absent from the foreign exchange market, but their rate is the highest in the region.

(With inputs from PTI)

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