Fiscal propriety

Pakistan’s failure to improve how it regulates cash flows in and out of the country is set to cause more consequences for the country. On Wednesday, the European Commission adopted a list of 23 countries, including Pakistan, which fail to adhere to the commission’s anti-money laundering and counter-terrorist financing frameworks. With Pakistan already on the FATF grey list for the same reason, now the country has been marked for its deficiencies by another international body. Pakistan joins a number of Middle Eastern countries on the EC’s list.

The EC has relied heavily on the FATF’s work in the field, by including 12 countries listed by the group as well as 11 additional jurisdictions. The EC has assessed the level of threat in each country as well as the legal frameworks and controls to prevent money laundering and terrorist finance risks. The consequences of the listing will mean that banks and other financial institutions in Pakistan will require increased checks on their international financial operations, with the objective being to flag suspicious financial flows. The EC is now expected to join FATF in the international institutions that work with Pakistan to improve its financial system.

How much trouble this will be for Pakistan remains to be seen, but there is little doubt that cash flows from and to the country have been seen with renewed suspicion recently. At a time when Pakistan is looking to improve exports and cash flows into the country, this added suspicion – and the consequent steps – will do little to reassure exporters, those looking to remit cash into Pakistan and those looking to invest in the country. Smooth operations in all of these sectors are essential to stabilising Pakistan’s external account deficit. If money from the country is seen as ‘dirty’ or tainted in any way it will also cause problems for Pakistanis living abroad or those from here looking to invest abroad. While the EC is trying to protect the European financial system, it is important for Pakistani authorities to protect our own interests. In this case, the failure to improve the control over money laundering and terrorist finance remains criminal. Authorities must be able to show the world that they are doing more to improve our country’s financial reputation. The world appears to be tightening the noose of fiscal impropriety. We would do well to ensure that Pakistan does not lag behind as it faces tough economic times.