The federal government approved rules for the conduct of barter trade between Pakistan, Afghanistan, Iran and Russia on Friday.
In the business-to-business barter rules issued by Ministry of Commerce, the three countries will now be able to exchange items without involving currency exchanges.
The rules will allow Pakistan to import LNG, LPG as well as crude oil to meet the country’s rising energy needs.
It will also allow Pakistan to export meat, fruits, vegetables, surgical instruments, textiles, perfumes and cosmetics.
Afghanistan and Iran will also become markets for sports goods from Pakistan, in exchange for minerals, metals and coal. Pakistan will also be able to get industrial machinery from Russia based on barter arrangements.
The move comes as many countries begin a departure from the policy of settling international trade agreements, particularly for Russian oil, in terms of the US dollar.
With dwindling foreign exchange reserves that are putting the economy under stress, Pakistan has resorted to limiting LCs to keep money at home. This has led to a shortage of many materials that exclusively came as imports to the country. However, the barter agreement might help save the problem without affecting the currency reserves further.
Sajid Amin, deputy director of the Sustainable Development Policy Institute, told Reuters that 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 the countries face.
“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 told Reuters that 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 (bpd) 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.
With input from Reuters
