War dries up unofficial dollar inflows

• Small exporters, manufacturers hit as inflows through hundi, hawala shrink sharply
• Crypto investments divert billions of dollars from local market

KARACHI: The country’s unaccounted foreign exchange inflows through the hundi and hawala network have declined sharply as the prolonged Gulf war disrupted Dubai’s informal trading business, hurting small exporters and domestic manufacturers.

Sources in the financial sector said that hundreds of flights every year carried people with goods not registered in the official export lists to Dubai. These people are commonly known as “khapiya”. The Gulf war, which lasted about five months, crippled this business and also dealt a blow to the domestic manufacturing sector.

“We have been preparing embroidery products for years, which were exported to the Dubai market. Now the market is closed and no buyers are available across the Gulf sta­tes,” said a manufacturer.

He added that his factory is now producing only for the domestic market, which accounts for just 10 per cent of last year’s production.

These businesses generated hundreds of millions of dollars, which flowed into Pakistan through illegal channels.

“Apart from these businesses, the hundi and hawala system never died; it only declined. Now the Gulf war has further eroded the possibility of dollar inflows into the country through hundi or hawala,” said a well-known currency dealer.

He added that those dollars eventually found their way into Pakistan, but it was difficult to assess the volume of inflows through these informal channels.

The currency market has also been reporting dollar outflows for the purchase of cryptocurrencies, with those involved in crypto trading offering up to Rs292 per dollar, compared to around Rs280 in the local market. Currency experts said several billion dollars have been invested in crypto trading, but no exact figure is available.

Last year, currency dealers said Pakistanis were buying dollars from exchange companies and investing in cryptocurrencies through illegal channels, resulting in an outflow of dollars from Pakistan.

“During the first 10 months of calendar year 2025, we sold about $4 billion to banks, which fell to $3bn during the same period this year. These missing dollars were mostly invested in cryptocurrencies,” said Malik Bostan, chairman of the Excha­nge Companies Association of Pakistan.

He said Pakistanis buying dollars from exchange companies deposit them into their foreign currency accounts, from where they withdraw the dollars and purchase cryptocurrencies through illegal channels.

However, the State Bank took initiatives to curb this outflow of dollars while, at the same time, continuing to work on developing a regulatory framework for crypto trading.

In mid-April this year, Pakistan lifted its eight-year ban on crypto-related banking activity by allowing financial institutions to work with licensed virtual asset providers.

The SBP issued a circular authorising regulated banks to open accounts for entities registered under the Pakistan Virtual Assets Regulatory Authority, following the passage of the Virtual Assets Act 2026.

The new framework allows banks to provide services to the sector but prohibits them from using their own capital or customer deposits to trade, hold or invest in digital assets.

Published in Dawn, July 26th, 2026 ...