Pakistan’s economy is on a continuous downward spiral and this months-long episode is not the only whammy taking a toll on country’s car industry, Hundi-Hawala came as another curse, ravaging Pakistan’s local auto industry.

In a surprising update, importers increasingly turn to these channels for the influx of used cars. Former General Manager at HinoPak Motors Limited, Zafar Ali, warns of widespread economic consequences, spanning from the weakening of the domestic auto sector to the depletion of foreign exchange reserves. Urging immediate government action, Ali proposes stringent regulations on used car imports and measures to combat financial malpractices.

Hundi-Hawala – A Challenge

In last couple of months, Pakistani government backed by law enforcement, has initiated a crackdown on dollar hoarding and illegal money transfer, resulting in over a 4% appreciation of the local currency in a month. The crackdown in expanding to address smuggling, notably targeting gold and oil.

Quantifying the exact amount of money exiting the country through Hawala-Hundi remains challenging due to the absence of a paper trail. Nevertheless, Ali asserts that these channels likely contribute significantly to foreign exchange outflows in Pakistan.

Hundi-Hawala, deeply embedded in South Asian financial tradition, operate largely outside the formal banking sector. Built on trust-based transactions, these systems rely on intermediaries for cross-border money transfers, particularly benefiting diaspora communities. Their appeal lies in simplicity, speed, and accessibility, especially for those without access to formal banking channels.

The concerning trend of an increase in imported used vehicles is causing a significant drain on foreign exchange, posing a threat to Pakistan’s economic stability. According to Ali, this financial outflow not only undermines the country’s economic foundations but also redirects resources that could otherwise be invested in vital sectors.

In the fiscal year 2022-23, more than 6500 used cars were brought into the country with over 5200 units arriving in the period from July to August of this year alone.