The recently concluded Eid-ul-Fitr shopping period has been reported to have been badly affected by high inflation and reduced purchasing power on consumers. At the same time, due to prolonged restrictions on imported goods, retailers have reported that many smuggled items filled some of the demand-supply gap, according to a report by DAWN.
The report quoted Mohammad Ahmed Shamsi of Karachi's All-City Tajir Ittehad (ACTI), who said that "smuggling of confectionery, bakery, children-related items, shampoo, soaps, crockery, electronic, artificial jewellery, etc." has increased. Despite this shift from formal to informal supply, Ilyas Memon of Tariq Road Traders Alliance has been quoted as saying that "although the local industry got its share of imported items, it could not fully utilise its potential due to people’s shrinking purchasing power".
Meanwhile, according to various sources, many items from Iran have been seen in the local markets of various cities originating from the Eastern border regions. The national government is more concerned about commodities being smuggled to Iran and Afghanistan, which appears to be contributing to the shortage of essential items. Meanwhile, state officials may be looking the other way on the subject of inflow of goods into Pakistan.
This phenomenon appears to have given an artificial breather to Pakistan's foreign reserves but does not bode well for the growth of the formal economy, according to economic experts. Smuggled goods mean that all related transactions escape customs duty, GST and income tax and discourage the use of banking channels for such purchases and sales. In turn, this may make the goods cheaper for end consumers, who are suffering from lower disposable income, and divert them from buying from documented businesses.
However, smuggling is not a new occurrence and has been reported to be ongoing for the past several years. Previously, high duties and taxes on imports also contributed to imports through informal channels despite improving the Government's revenue generation until the recent import controls prompted a drop in tax collection.
Earlier this year, representatives of the business community informed the public that Pakistan is losing US$ 2.63 Billion per year due to the smuggling of 11 categories of goods. In addition, flooding of smuggled items is widely considered to badly hurt the local manufacturing sector and even exports. The repeated economic crises appears to provide short-term relief for many but is likely to create more hurdles for economic development in the future.
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