Amidst rising concerns over the dollar-flight to Afghanistan, the State Bank of Pakistan has announced that it will curb the “undesirable” outflow of foreign exchange to the neighboring state. According to media reports, dollars are being smuggled from Pakistan to Afghanistan in huge amounts, making use of the porous Durand Line that Kabul has never fully accepted and Islamabad has administratively neglected, allowing the rise of militant groups such as Al Qaeda and the Taliban. At the same time, Afghan nationals in Pakistan are hoarding dollars even as the state’s coffers are rapidly emptying. Officially, a dollar is equal to PKR 226, but the impact of smuggling is clear in the open market rate, which ranges between PKR 235-250 to the dollar.
The basic reason for the rampant smuggling is Pakistan’s “disputed” western border. When Pakistan joined the United Nations in 1947 after Partition, Afghanistan was the only member nation to vote against its membership. Subsequently, Kabul announced that all previous Durand Line agreements, including the subsequent Anglo-Afghan treaties upholding it, were invalid because Afghan rulers were coerced under British pressure. Kabul had wanted—and some elements today still desire—an independent ‘Pakhtunistan’ to be carved out of Pakistan, expanding Afghanistan all the way to the Indus River. Pakistan’s inability to effectively extend its writ over areas lying along the Durand Line fuels this demand, with the most troublesome being a lack of loyalty to Pakistan from people living on this side of the border, not to mention frequent border-fence incursions and a legal trade route often exploited by corrupt officials.
In the past, Pakistan paid little attention to retaining its erstwhile tribal areas and penalizing illegal border-crossings. This relegation of the economic interest helped transform the Afghan Transit Trade, facilitated by Pakistan since 1965, into the biggest smuggling racket of the world. This has only grown exponentially over the last three decades, providing a “reliable” revenue source to Afghanistan that has proven especially detrimental to the economy of Pakistan. Dollars often go to Afghanistan in orange crates, with officials turning a blind eye in exchange for a cut. Recently, the Frontier Constabulary caught a policeman who was enabling smuggling of $50,000 in just once instance. Malik Muhammad Bostan, chairman of the Forex Association of Pakistan, last month owed the country’s hemorrhaging of dollars to smuggling and its trade with Afghanistan, estimating losses of $2 billion a day, including the smuggling of edibles such as sugar, which passes through Afghanistan to Central Asia states even as Pakistan is forced to import it with dollars.