Trading in Afghan currency resumes after early halt following Taliban takeover

KARACHI: The Afghani currency breathed a sigh of relief on Monday, as its trading resumed after being halted following concerns about the long-term impact of the Taliban takeover of Afghanistan.

“Trading in the Afghani currency was stopped for two days but it resumed in the second session and the selling rate for the Afghani currency was 2, compared with 1.70 last week,” said Malik Bostan, the chairman of the Exchange Companies Association of Pakistan.

“The demand for the Afghan Afghani rose, giving confidence to traders about the prospects of peace and stability in Afghanistan as many nations have expressed willingness to support the country’s reconstruction,” he added.

However, still, there's a high level of uncertainty about the future of the neighbouring currency as dealers were concerned whether the world would recognise the Taliban government or not. Analysts are trying to predict the economic spill over in Pakistan.

The rupee is likely to face depreciatory pressure due to rising demand of US dollar in Afghanistan in the wake of change of political setup in Kabul, as practices suggest traders used to freely move foreign currencies across two sides of the Durand Line.

“A lot of trading in Afghanistan is now denominated in Pak rupee, but there is a huge demand for US dollars as well. It is certain that material amounts of foreign currency are being smuggled across the border, putting some pressure on the rupee,” said Komal Mansoor, an analyst at Tresmark, an application that tracks financial markets.

“Not only is the rupee and dollar in demand, any currency the locals can get their hands on is mopped up, especially the Turkish Lira, Euro and even the Iranian riyal,” Mansoor said.

With the US abandoning Afghanistan, dollar inflow will obviously ebb and a lot of basic commodities will become scarce. This will be somewhat circumvented by smuggling across the border, which Pakistan will have to shoulder and as a consequence, the rupee will feel the heat, said another analyst Faisal Mamsa.

The most significant development affecting Pakistan's economy in recentyears is improvement in security conditions. This led to more favourable travel advisories by foreign governments, including the US recently, and would be a boon to Pakistan's exports.

Ehsan A Malik, the CEO at The Pakistan Business Council said spill over of turmoil from Afghanistan is a concern. Safety and security of people and movement of goods are equally essential for domestic trade.

“We are seeing green shoots in the economy that are mostly in domestic consumption - autos, cement, iron and steel, food and beverages. Market disruption due to closures will be detrimental. Also, the recent upsurge in exports is mainly because of diversion from alternative supply sources affected by Covid - Bangladesh, and India,” he said. The mass influx of refugees from Afghanistan may challenge our efforts to contain the pandemic.

Whilst deterioration in security conditions would affect both domestic consumption and exports, the likelihood of this is low. The centres of production, consumption, and international trade in Pakistan are far from the Afghan border and our security forces now have greater capability of containing and dealing with fallouts, Malik said.

Businesses in Pakistan are resilient, thanks to the volatile, uncertain, complex and ambiguous conditions in which they have been operating for years. There will be some positive impact too, he added.

Misuse of the Afghan transit trade treaty and dumping of duty/tax evaded goods should decline in the near-term. Once things start settling down in Afghanistan there should be opportunities for Pakistani businesses to engage in reconstruction there, subject of course to availability of funds. China has offered to assist.

Integrating Afghanistan into China-Pakistan Economic Corridor (CPEC) and opening up the routes to Central Asia offers a major medium-term opportunity. Pakistan's economic diplomacy should focus on gaining improved tariffs for joint Afghan/Pakistan-produced goods from countries eager to see peace return to this part of the world. These could also be contingent on defined gender and environment objectives to address the concerns of the international community. “Businesses may take a risk management approach in the short-term but should be ready to avail the opportunities that lie ahead,” Malik added.