The prevalence of illicit trade between Afghanistan and Pakistan has deep historical and structural roots. The United Nations Security Council, in its report from June 2022, noted that the Taliban dismantled roadside checkpoints, originally intended to regulate cross-border revenue, thus facilitating continued illicit flows that serve as significant revenue sources for the terror group.

Rampant smuggling of goods and currency across the Afghan-Pakistan border has long been a persistent issue, having negative implications for the economic stability of Pakistan. This activity, which includes the illicit movement of commodities, drugs, and currency (particularly U.S. dollars), exacerbates economic challenges, distorts markets, and hampers legitimate trade.

The Afghanistan-Pakistan Transit Trade Agreement (ATT) of 1965, designed to facilitate trade, has inadvertently exacerbated the issue of smuggling. Goods intended for Afghanistan often end up being sold in Pakistan without paying duties, creating one of the world's largest smuggling rackets. Recent estimates reveal that smuggling volumes surged from $2.287 billion to $3.731 billion, accounting for 63% of the trade volume.

Scope of Smuggling and Its Economic Impact

The Afghan-Pakistan international border is 2640 km making it a hotspot for illegal trade difficult the Pakistan government’s fencing efforts. Smuggling operations thrive in this environment, facilitated by difficult terrain, political instability, and a lack of robust enforcement mechanisms. Goods such as electronics, fuel, textiles, and food items are smuggled into Pakistan, avoiding customs duties and taxes. A recent international report released in May 2024 by Jeff Hardy of the Transnational Alliance to Combat Illicit Trade (TRACIT), revealed that illicit trade in major sectors is causing Pakistan's national economy to lose over 2 billion USD $ annually. This substantial loss not only impacts the profitability of the formal sector but also contributes to broader issues such as corruption, money laundering, and tax evasion.

Currency smuggling remains a critical issue, with customs officials seizing approximately Rs 930.46 million from 2019-2023. Despite official denials, reports suggest that around $5 million is smuggled daily across the border. The widespread smuggling of goods, including textiles, steel, and consumer electronics, further compounds the problem.

The steel industry, a vital economic pillar, is particularly hard hit, with an estimated 500,000 metric tons of steel smuggled annually from Pakistan to Afghanistan, causing a tax revenue loss of Rs25 billion. This illicit trade undermines the local market, leading to potential job losses and endangering the sector's viability.

Narco Trade/Smuggling 

Drug trafficking is another dimension of the smuggling problem, with Pakistan serving as a transit route for Afghan narcotics. The United Nations Office on Drugs and Crime (UNODC) estimates that the illicit opium economy in Afghanistan is US $102 billion annually, with a substantial portion transiting through Pakistan.

The consequences of drug smuggling are multifaceted. Besides the health and social issues associated with drug addiction, the proceeds from drug trafficking often fund terrorist and insurgent groups, thereby destabilizing the region further. Furthermore, the informal economy generated by the drug trade distorts economic data and complicates efforts to formulate effective economic policies.

Socio-Economic and Security Implications

The socio-economic implications of smuggling are profound. The influx of smuggled goods depresses the prices of local products, harming domestic industries while leading to job losses. From 2018 to 2023, customs officials seized vehicles worth Rs 1352 million, mostly under the Customs Act 1969. Narcotics valued at around Rs484 million were also intercepted, alongside arms and ammunition worth Rs145 million. The illegal trade of arms has contributed to the proliferation of the "Kalashnikov culture" across the length and breadth of Pakistan.

Smuggling activities along the Afghan border are often linked with militant groups and organized crime. These groups not only use smuggling as a means of financing their operations but also exploit the porous border with Pakistan for movement, further complicating efforts to maintain regional security.

Government Response and Challenges

Recent efforts by the Pakistani government to combat currency smuggling have led to significant confiscations. Data presented to the Apex Committee of the provincial Khyber Pakhthunwa government revealed that Rs 6 billion worth of smuggled goods and 78 tons of contraband were confiscated in 2023-2024, while Rs1.39 billion currency notes were seized in actions against the illegal hundi-hawala business and profiled 100,000 NCP vehicles.

These recent crackdowns are part of broader efforts to curb smuggling and illicit financial flows, which have long plagued Pakistan's economy. Smuggling activities not only undermine local industries but also lead to significant losses in tax revenue. Moreover, a large proportion of everyday commodities, including textiles and electronics, enter the Pakistani market through illegal channels, further exacerbating economic distortions. The government has intensified its actions, but challenges such as corruption and inadequate enforcement resources continue to hamper effective control over smuggling routes.

While the challenge is formidable, sustained efforts and international cooperation can help mitigate the impact of smuggling on Pakistan's economy. In the long run, addressing the root causes of smuggling, such as poverty, lack of economic opportunities, and political instability, will be crucial in breaking the vicious cycle that currently undermines the country's economic stability.

(The author is a graduate of international affairs with interests in foreign policy, national security, and geopolitics. She has worked with the National Assembly of Pakistan. Views are personal. She can be reached at manahil.jaffer786@gmail.com )