major factor in all of Pakistan’s financial problems is the decline in its foreign exchange reserves. Dwindling reserves means that we cannot pay for our imports, we cannot pay our debts, we face a widening trade imbalance and prices of goods and services go up. A depleted reservoir of foreign exchange is an early sign of potential default on external payments.

One of the main sources of foreign exchange inflows has been remittances by overseas Pakistani workers. Once Pakistanis living abroad turned to illegal means of sending money home, flows through official channels dried up. Dollars were also being smuggling out of the country.

According to official figures, 60 to 70 million dollars a month are siphoned off from Pakistan illegally. Some unofficial estimates put the figure as high as $150 million. Traders said dollars were being taken to Afghanistan. The smugglers, they said, would pay a significantly higher price than the official exchange rate to buy dollars, leading to an imbalance between supply and demand.

For an economic turnaround in Pakistan to be sustainable the smuggling in foreign currency, gold and oil has to end. In an imperfect world leaks can never be fully plugged. However, efficient economies close as many gaps as possible.

Kashif Anwar, the Lahore Chamber of Commerce and Industry president, says it is vital to stop the hoarding and speculation in foreign currency.

To build the pool of foreign exchange reserves, he proposes a one-time amnesty for the declaration of undeclared assets. Unlike in the past, he says, the amnesty scheme must follow a robust plan of documentation and bringing the asset-holders into the tax net through strict implementation of rules and regulations.

He says that foreign investment is directly linked to political stability in a country. Currently, even local investors are wary of investing in Pakistan. As opposed to a conducive environment for investment and ease of doing business, the current climate in Pakistan is raising the cost of doing business. Inputs and energy costs and interest rates are high and opening LCs for imports difficult.

He says indigenous production of electricity, as opposed to that based on imported fuel, is vital to bring inflation down. He proposes that the political parties agree on a charter of economy, building the Kalabagh Dam and revival of Islamic banking.

Rashid Ashraf, the chief executive officer of ACE Group of Companies, points to another area that he argues needs the government’s undivided attention. He says it is the strict regulation and surveillance of the money exchange market. He says prominent players in the sector have been acting responsibly in dealing with international remittances to ensure black marketers cannot aggravate Pakistan’s fiscal situation.

Experts believe that enhanced surveillance mechanisms have to be deployed at the borders and treaties signed with the neighbouring countries to strengthen cross-border cooperation.

An expatriate Pakistani, Ahmad Bashir, working in the financial sector in Saudi Arabia says the remittances had dropped considerably due to political uncertainty in Pakistan, “Why would overseas Pakistanis send their hard-earned money, when dollar-rupee parity is going haywire?” He says that there should be strict controls in place to bring inflation and the cost of living down once dollar and fuel prices fall. “The dollar price dropped from Rs 320 to Rs 280, and the petrol price declined by Rs 48 per litre in a month. However, it did not bring inflation down,” he says.

Experts say that Pakistan will have to deploy enhanced surveillance mechanisms for border control and enter into treaties with the neighbouring countries to strengthen cross-border cooperation and eradicate smuggling.

He says more checkpoints should be built along the Afghan border. Special law enforcement forces should be deployed on borders with the power to confiscate assets apprehended as smuggled goods. A robust regulatory framework is needed to discipline the behaviour of the financial market. Those working in the financial sector must be trained in the latest techniques, tools and technologies to combat money laundering and terror financing.

Requesting anonymity, a top official of the Ministry of Finance says the government has enforced strict checks on the Afghan transit trade. He says smuggling of dollars to Afghanistan and smuggling of oil from Iran are being curbed.

He says speculation in the informal market is being monitored as well. “Shady exchange companies have been closed down; the capital requirement for others has been increased.”

The ministry official also says data on the large-scale manufacturing is very encouraging. It recorded 2.5 percent more growth in July and August this year as compared to the corresponding period last year. For the first time after December 2022, it has shown month-on-month growth of 8 percent in July and August this year.

For Pakistan to progress, it has to bring about fiscal discipline in its economic management.

The writer is a reporter associated with The News International. An EWC and GIJN fellow, he contributes to various international media outlets. His X handle: @AmerMalik3