Pakistan’s economy and the lives of its inhabitants are facing a combination of problems, especially on the economic as well as global political front. The worsening macroeconomic conditions on account of the twin deficits and rapidly depleting foreign currency reserves, combined with expected developments in the Financial Action Task Force (FATF) meeting later in Paris this week would have far reaching impacts on Pakistan. Add to this the period of political uncertainty within the country, which is soon going to go through transition with the interim government taking over for general elections, and later handing over the reins to whoever wins the next election, those at the helm of the affairs should be running from pillar to post to address the problems.
Insight
Pakistan’s economy and the lives of its inhabitants are facing a combination of problems, especially on the economic as well as global political front. The worsening macroeconomic conditions on account of the twin deficits and rapidly depleting foreign currency reserves, combined with expected developments in the Financial Action Task Force (FATF) meeting later in Paris this week would have far reaching impacts on Pakistan. Add to this the period of political uncertainty within the country, which is soon going to go through transition with the interim government taking over for general elections, and later handing over the reins to whoever wins the next election, those at the helm of the affairs should be running from pillar to post to address the problems.
Instead, the rulers are fixated on settling petty political disputes and are indulging in point scoring as to who truly rules the country even after 70 years of independence.
One must remember that Pakistan has always faced boom and bust cycles. As far as growth was concerned, the country has been much dependent on foreign inflows. It received more inflows with the blessings of the United States and its western allies over the years, and we never tried to stand on our own feet, choosing to continuously rely on external support. These crises that the country faced on many occasions throughout its independence could have been used as opportunities to transform and become self-reliant.
It is because of this dependence on outside help that Pakistan is facing the worsening macroeconomic situation and may miss its envisaged gross domestic product (GD) growth target of six percent with a substantial margin. Unfortunately, the country’s GDP growth may not even touch the last year figure of 5.3 percent, despite the fact that all International Financial Institutions (IFIs), such as the International Monetary Fund (IMF), World Bank, and Asian Development Bank had given a projection of over 5.5 percent for Pakistan. It would be a blow for all these institutions due to their faulty projections, keeping in view the available data of different sectors for the first six months of the current fiscal year.
The country’s lower than expected growth and depleting foreign currency reserves with the State Bank of Pakistan holding only $12.8 billion at the end of February 9, 2018, the macroeconomic crisis is just around the corner. The external debt and liabilities have already peaked to $89 billion and the economists are projecting it would touch $95 billion by the end of the current fiscal year, ending on June 30, 2018.
The loans provided by the Chinese through the Exim Bank and others for the China-Pakistan Economic Corridor (CPEC) projects are not fully reflected in this. Also, following the change of government in Islamabad during the caretaker setup or after the elections, one sudden morning it could even be disclosed that the country’s external debt and liabilities have gone up by $6 to $7 billion mark in one go. So the country might cross $100 billion mark on account of external debt and liabilities anytime within this calendar year.
The budget deficit which the government claimed standing at 2.5 percent of the GDP for the first half of the current fiscal might cross to six percent of the GDP by the end of June 2018, keeping in view that this is the electioneering year.
While this economic turmoil is already more than enough at the domestic level, Pakistan’s addition to the watch list under global lobbying could increase the problems manifold. United States and its western allies, including Germany and France, have moved a resolution to put Pakistan in the watch list with the Financial Action Task Force for having a lacklustre approach for tackling terror financing and taking stern actions against prescribed outfits in line with UN resolution of 1267.
The Financial Action Task Force was established in July 1989 by a Group of Seven (G-7) Summit in Paris, initially to examine and develop measures to combat money laundering. Its objectives were to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
Starting with its own members, the task force monitors the progress of the countries in implementing its recommendations; reviews money laundering and terrorist financing techniques and counter-measures; and, promotes the adoption and implementation of the FATF recommendations globally.
The FATF Plenary and Working Group is scheduled to meet in Paris from February 18 to 23, 2018. Pakistan’s delegation will be participating in its upcoming meetings to apprise the forum about different steps taken by Islamabad to counter terror financing and banning prescribed outfits.
With issuance of official notification banning Jamaat-ud-Dawa (JuD) and Falah-e-Insaniat Foundation (FIF) last week soon after the federal cabinet meeting, the government started seizing its assets and closing down offices.
However, official of diplomatic corps here in Islamabad are giving mixed signals and some have even asked why Pakistan did not take such actions six months ago as now it was too late to avoid being put on the watch list.
On the basis of Mutual Evaluation done by FATF in 2009-10, Pakistan was put in the black list. Following that, Islamabad took a number of legislative steps and the country was excluded from the black list and put into the grey one in 2014. Later, in 2015, the country was put in the white list.
A senior official dealing with the economic issues said, “If Pakistan was downgraded and put into the grey list then it will have negative repercussions on the country’s credit ratings. Pakistan’s credit rating may be downgraded if FATF downgraded its ranking for Islamabad.”
Any downgrading moves by the credit rating agencies could cause losses to the country’s plan for launching another Eurobond anytime within the current fiscal year.
Speaking on the matter with Money Matters, Advisor to Prime Minister for Finance Miftah Ismail said Pakistan had taken all the steps and hoped that Islamabad would not be put in the watch list.
He said all relevant ministers had visited different important destinations of world capitals in the last few days for sharing Pakistan’s stance about the steps that have been taken against terror financing and prescribed outfits.
United Nations team had visited Pakistan in January 2018 to evaluate Islamabad’s performance for complying with UN Resolutions of 1267 for curbing terror financing. Now the UN team will report back to its headquarters, and a satisfactory report is must for avoiding any movement towards slapping any kind of sanctions in future.
Another official said that matter was very serious, and any negative report from the UN could jeopardise and lead to the initiation process of imposing sanctions.
This issue is dealt by different ministries with Financial Monitoring Unit (FMU), established under the Ministry of Finance with a leading role. It works in close collaboration of State Bank of Pakistan. The Federal Board of Revenue (FBR) has also established one unit to look after anti money laundering cases and special powers have been handed over to Intelligence and Investigation (I&I) of Inland Revenues. The Ministry of Foreign Affairs and Ministry of Interior also assisted to firm up Pakistan’s case for taking actions and sharing updates with the world. The lack of effective coordination also increased our difficulties on the FATF front.
If Pakistan was put in the watch list, then FATF would set criteria of requirement for coming out in stipulated timeframe and the country would have to graduate to comply with these conditions.
Time has come when there is no room for further adventurism. There is need to ensure political stability, set path for economic reform agenda and pursue it for the next 10 to 15 years if we want to bring any real change in this country.
The writer is a staff member
