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| What is barter trade and will barter trade with Russia, Iran, and Afghanistan be beneficial for Pakistan? |
Pakistan has allowed barter trade with its neighboring countries Iran and Afghanistan apart from Russia. Pakistan's Ministry of Commerce through a notification has allowed the government companies as well as the private sector to import and export products with the three countries.
The development of barter trade by Pakistan with the three countries has come at a time when Pakistan is facing economic problems.
Pakistan is suffering from a trade deficit due to the large volume of imports compared to exports in the country's foreign trade sector and this trade deficit is causing an imbalance of payments in the country's external sector due to the lack of dollars in the country.
Although Iran is a neighboring country of Pakistan, it is not among the top 20 exporting countries from Pakistan.
Among the products imported to Pakistan by 20 major countries, Iran ranks last, while Afghanistan's imports to Pakistan are negligible. However, Afghanistan is also included in the 20 countries to which Pakistan's exports go.
This list does not include Russia, nor is the volume of Pakistan's imports from Russia that large.
According to experts, Pakistan's barter trade with Iran and Afghanistan has been going on informally for a long time, but its volume was not high and only now it has been given a legal form.
What is Barter Trade?
Pakistan has legalized the barter trade system with Iran, Afghanistan, and Russia. But what is barter trade?
"Barter trade is the direct exchange of goods and services without the use of money," Usman Qadir, an economist at the Pakistan Institute of Development Economics, told the BBC.
Barter trade has not been extensively covered in the traditional trade theory framework. This is relatively rare in modern economies, where financial transactions and specialized markets are the main means of trade.
"Barter can still take place in certain situations, especially in informal or underdeveloped economies where financial transactions are limited," he said. Barter trade may also take place in special sectors or in the context of specific trade arrangements.
Trade Development Authority of Pakistan chief executive Zubair Motiwala told the BBC that 'barter trade is basically the trade of goods for goods in which no money is involved.'
"For example, if you want to give rice, the next person will give you coal instead of paying money for the purchase of that rice."
He said this was the case in the old days.
What will be the benefit and what goods will be barter trade?
Discussing the benefits of a barter trade system with Afghanistan, Iran, and Russia, Usman Qadir said that it would benefit both the country and the government as Pakistan lacks foreign exchange which is needed for imports.
He said that foreign exchange reserves will be saved from goods in exchange for goods.
Motiwala said in this regard that on the one hand, foreign exchange will be saved, on the other hand, the exports of the country will also increase and the volume of trade will also increase.
According to the notification issued by the Ministry of Finance, the importers and exporters on the active taxpayer list of the Federal Board of Revenue will be eligible for this barter trade.
Importers will be allowed by the government to import fruits, dry fruits, vegetables, pulses, chilies, minerals, metals, coal, raw rubber items, hides, iron, and steel from Afghanistan.
The government has imported fruits, dry fruits, chili spices, minerals, metals, coal, petroleum crude oil, LNG, LPG, chemicals, fertilizers, plastics, rubber, iron, and steel along with some other goods from Iran. Import is allowed.
The government has allowed imports of pulses, wheat, coal, and petroleum including crude oil, LNG, LPG, fertilizers, plastics, rubber, minerals, metals, textile industry machinery, iron, and steel from Russia.
Has the government of Pakistan been doing barter trade in the past?
Talking about the latest development of barter trade with Iran, Afghanistan, and Russia and any such arrangement in the past, economist Zubair Motiwala said that 'it used to happen on behalf of the population on the border of Iran and Afghanistan. They have been doing barter trade on a limited scale, but now it has been legalized by the government.
He said that it was being worked on for three years and now it has been finalized and legalized.
He said that he had visited Peshawar and Gwadar along with the Chambers of Commerce and reviewed the situation there.
He said that before this, the State Bank had also built counters at the Chaman and Torkham border to monitor the transactions that were taking place, but after the barter trade, there is no longer any need for it because there is a line of rupees or dollars. There is no religion.'
Usman Qadir said in this regard that the latest attempt at barter trade was made in the context of Pakistan-Iran bilateral trade in 2022, mainly agricultural products such as rice and cano from Pakistan and apples from Iran were being traded.
Why is there a need for barter trade now?
Talking about the barter trade system, Zubair Motiwala said that 'work was being done on it for many years but now it has come out in its final form.'
Talking about its need, he said that the country needs more trade, but when something is imported, dollars are also needed.
At present there is a shortage of foreign exchange reserves in Pakistan. Therefore, it is the best arrangement in such a situation that you are also trading and the foreign exchange is not being spent.
Usman Qadir said in this regard that "opening letter of credit (LC) for exports was also a major obstacle due to various American and international sanctions on Iran."
It should be noted that the absence of a reliable payment mechanism and the international sanctions imposed by the United States and the European Union in 2010 continue to hamper trade between Pakistan and Iran.
These sanctions prevented Pakistani banks from doing business with Iranian banks. Opening LCs, the most reliable method for international trade transactions, was also difficult.
In the current situation, the Government of Pakistan is pursuing barter agreements to meet the shortage of foreign exchange reserves in the country.
How will this barter trade be possible despite the restrictions?
Among the three countries with which Pakistan has allowed barter trade, Russia, Afghanistan, and Iran are subject to various international sanctions.
Afghanistan has been under diplomatic sanctions since the Taliban took over in 2021, while Iran has been sanctioned by international organizations for many years. Due to the war between Ukraine and Russia, Russia is also subject to many international sanctions.
Talking about Pakistan's permission for barter trade with them in the context of international sanctions on these three countries, Usman Qadir said 'in the current context, the sanctions are mainly on the financial side and compensation for the barter trade sanctions. are being done for Earlier, the government has approved a framework for conducting barter trade.
Zubair Motiwala said that the restrictions apply to the banking channel and the transactions made in it for opening and payment of LCs for foreign trade, but no payment is being made in barter trade. That includes the banking channel.'