Owing to a sharp depreciation of the rupee, the State Bank of Pakistan recently woke up to the problem of flight of capital through the country’s airports.

However, the smuggling of dollars is one of many ways, including lax rules, which can be used to transfer money abroad.

Therefore, it is time for the authorities to address the regulatory issues that often contribute to the free fall of the rupee.

The legal transfer of dollars abroad through normal banking channels or authorised dealers has been made possible because of an amendment made in the foreign exchange law during the Musharraf-led government in 2003.

The amendment withdrew restrictions on transfer or holding of unlimited amount of foreign exchange. Earlier, as per the 1979 law, one had to surrender his foreign exchange transfers to an authorised dealer for conversion into local currency within a period of three months of receiving or bringing in the same.

The law was changed to allow resident Pakistanis to keep their foreign exchange earnings for an unlimited period without getting them converted into local currency.

And the beneficiaries included many top politicians and other influential people.

The rules that relaxed restrictions on transfer of foreign exchange abroad were used by the rich and the influential to send billions of dollars through ‘legal’ channels during the current crisis.

Under the Foreign Exchange Regulations Act (FERA) of 1947, an individual could not take out of the country an amount of more than $10,000 in cash; whereas the Protection of Economic Reforms Act (PERA) of 1992 prescribes no such limit.

Besides, there are some other devices (or loopholes) that facilitate flight of capital abroad as well.

For instance, a part of export proceeds in dollars is often retained abroad. And fake e-forms are the principal mode for the slippage of foreign exchange.

The e-form is designed to ensure repatriation of export proceeds in foreign exchange to the country, which also provides leverage to the central bank to monitor dollar inflows.

But the Customs authorities and the central bank are responsible for not initiating inquiry against banks whose stamps are used on these e-forms. And the Customs department ought to verify the genuineness of the e-forms.

The over-invoicing of imported goods is another grey area for flight of capital.

The government recently introduced some regulations to control the capital flight under a scheme for export of imported gold in the form of value-added gold jewellery that was being misused.

There was previously no restriction on the import of gold, which is now capped at 25kg per transaction.

Similarly, jewellers have been restricted from selling imported gold in the local market, and they now have to export it within 120 days instead of the earlier 180 days.

One hopes that these measures will discourage the misuse of the facility.

All these devices are different from ‘hundi’ or ‘hawala,’ which are used to take out capital from the country.

The FBI has estimated that $100 billion in assets of Pakistan’s rich are in foreign countries, while the National Accountability Bureau puts that figure at $500 billion. Experts say these assets are believed to have been built through illegal transfer of money, or retained through over or under-invoicing.

The government needs to look into these grey areas and plug loopholes to reduce the pressure on the rupee. Further devaluation will be a serious threat which, if not controlled, will make the national economy more dependent on imports. Depreciation also means increased cost of industrial inputs, particularly for export-oriented industries.—Mubarak Zeb Khan