Alarming picture: Capital flight

From the Newspaper

Published 2013-10-03 07:15:33

THE governor of the State Bank of Pakistan, Yasin Anwar, is perhaps the first senior official to
concede that capital is being moved out of the country in very large sums, and also to quantify it. In
his testimony before senators on Tuesday, Mr Anwar said $25m were being smuggled out of the
country in briefcases every day from four major airports Karachi, Lahore, Islamabad and Quetta.
He did not say how the bank had worked out the size of the illegal capital outflows and since when
this practice had been going on and these gaps in information have left some economists
puzzled. However, even if half this staggering amount is going out of the country each day, it would
confirm how porous our custom checkpoints have become, not least because of corruption and
weak controls. It would also show how the weak enforcement of anti-money laundering laws is
playing havoc with the economy.
Some analysts say the capital outflow could be the result of the recent decision to give tax collectors
powers to access the bank accounts of the rich in order to apprehend tax cheaters. If so, the outflow
could also be a major factor in the speculative pressure on the rupee and the currencys rapid
depreciation in recent days. But the capital flight is not altogether a new phenomenon. The wealthy
have been moving their money out of Pakistan in order to avoid actual or expected taxes as well as
unwanted government interventions. Earlier, capital flight took place through the informal channels of
hundi and hawala. Now the people carry cash to circumvent the restrictions imposed by foreign
states on these channels to curb funding for terrorism.
In many cases internationally, flight of capital is related to money made from activities such as drug
trafficking, gunrunning, tax evasion, theft, etc. In other cases, it reflects the loss of confidence in the
economy and its ability to bounce back. In either case, the implications can be serious for economic
stability, investment, growth and equality. While the rich can and do move their financial assets out
of the country, the poor are left to shoulder the burden of the depleting value of the currency.
Therefore, it is imperative to place strict checks to curb the illegal transfer of money through ports or
informal channels. But before that the government will also have to remove lacunae in the antimoney laundering laws, abolish legal money-whitening schemes, and increase controls over money
changers who help people move their ill-gotten money out of the country.