Pakistan Outlines Process for Barter Trade With Iran, Russia, Afghanistan

Pakistan has passed a special order to allow barter trade with Iran, Russia and Afghanistan for certain goods, including petroleum and natural gas, the country’s Commerce Ministry said on Friday.
Left with barely enough foreign exchange reserves to cover one month's imports, Pakistan's government is desperately trying to manage a balance of payments crisis and bring inflation under control after it hit a record of nearly 38% last month, Reuters reported.
The government order, called the Business-to-business Barter Trade Mechanism 2023 and dated June 1, lists goods that can be bartered. State- and privately-owned entities would need approval to participate in the trade mechanism.
Sajid Amin, deputy director of the Sustainable Development Policy Institute, said Pakistan could gain particularly from oil and energy imports from Russia and Iran without adding to dollar demand. He added that the barter opportunity is important, considering the dollar shortages facing the countries.
"While it may not solve currency smuggling, particularly at the Afghanistan border, it can discourage smuggling of goods from Iran, such as diesel, and Afghanistan which is hurting the economy," Amin added.
After Pakistan's first purchase of discounted Russian oil in April, petroleum minister, Musadik Malik, said Pakistan would only be buying crude, not refined products, under the deal.
There was no confirmation about how payment would be made but Malik said purchases could rise to 100,000 barrels per day if the first transaction went smoothly.
Last year, Pakistan imported 154,000 bpd of crude oil, little changed from 2021, data from analytics firm Kpler showed.
In May, the Pakistan Petroleum Dealers Association complained that up to 35% of the diesel sold in Pakistan had been smuggled from Iran.
Pakistan's government has also ordered a clampdown on smuggling of flour, wheat, sugar and fertilizer to Afghanistan.

Pakistani Business Community Welcomes Move

The Pakistani business community has welcomed the government decision of allowing barter trade with Russia, Iran and Afghanistan, Pakistan Observer reported.
Lahore Chamber of Commerce and Industry has appreciated State Bank of Pakistan and the Ministry of Commerce for issuing two significant circulars that would promote regional trade and ease burden on depleting foreign exchange reserves.

Matching Import With Export

LCCI President Kashif Anwar and other office-bearers expressed hope that the import of oil and energy from Russia would help reducing the cost of petroleum products and strengthen energy security.
Under the barter trade arrangement, the principle of “import followed by export” will be followed, ensuring that exports match the value of imported goods. This trade approach opens up opportunities for Pakistani businesses to export 26 commodities, including milk, eggs, cereal, meat and fish products, fruits and vegetables, rice, salt, pharmaceutical products, leather apparel, footwear, steel and sports goods to Afghanistan, Iran and Russia. 
Simultaneously, Pakistan can import a range of products, including fruits, vegetables, spices, minerals, coal, rubber items, cotton, pulses, wheat, petroleum oils, fertilizers, plastic and rubber articles, metals, chemicals and textile machinery from these countries.
LCCI office-bearers said the implementation of this barter trade mechanism would significantly reduce the cost of doing business and stabilize Pakistan’s economy. It will ease burden on foreign reserves, address the country’s balance of payments crisis, reduce reliance on dollar transactions and bring much-needed relief to businesses, thereby enhancing the overall business environment.
SBP has granted banks permission to acquire US dollars from the interbank market. This short-term measure aims to alleviate pressure on exchange companies and enable customers to benefit from lower exchange rates. The permission granted to banks will remain valid until July 31.
Previously, customers conducting card-based cross-border transactions were subjected to the open-market USD rate, resulting in a considerable disparity between the interbank and open-market rates. 
By allowing banks to purchase dollars from the interbank market, this circular has effectively reduced the open-market dollar rate by Rs20-25. This step will not only reduce the cost of cross-border transactions but will also narrow the gap between the interbank and open-market rates.