Dollar inflows to Pakistan via hundi networks plunge sharply after war disrupts Gulf’s informal trading business: report

Unaccounted dollar inflows through the hundi and hawala networks to Pakistan have declined sharply after the prolonged war disrupted Gulf’s informal trading business, Dawn reported, citing sources in the financial and trading sectors.  

Sources said many small manufacturers and traders from Pakistan have long been relying on informal trade routes, shipping goods to the Gulf and receiving payments through hundi and hawala channels specifically to dodge taxes and keep their earnings off the government's books.

"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 said his factory is now producing only for the domestic market, which accounts for just 10% of last year's production. These informal businesses had generated hundreds of millions of dollars, which entered Pakistan through illegal channels.

"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, adding that those dollars did eventually reach Pakistan, though the volume flowing through informal channels remains difficult to assess.

Separately, the currency market has been reporting dollar outflows tied to cryptocurrency purchases. Those involved in crypto trading have been offering up to Rs292 per dollar, compared to around Rs280 in the local market. Currency experts said several billion dollars have gone into crypto trading, though no exact figure is available.

Last year, currency dealers said Pakistanis were buying dollars from exchange companies and investing them in cryptocurrencies through illegal channels, driving dollar outflows from the country.

"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.

The State Bank of Pakistan (SBP), however, has taken steps to curb this outflow while simultaneously working on a regulatory framework for crypto trading. In mid-April this year, Pakistan lifted its eight-year ban on crypto-related banking activity, 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 bars them from using their own capital or customer deposits to trade, hold, or invest in digital assets.