In June 2018, the international watchdog on money-laundering and terror financing, Financial Action Task Force (FATF), placed Pakistan in its increased monitoring list (grey list) for the third time over concerns of money laundering and terror financing.
On June 17, 2022, the FATF, in its cyclical plenary meeting in Berlin, lauded Pakistan’s efforts over addressing all 34 action points on two concurrent action plans. President FATF Dr Marcus Pleyer, though, has said that Pakistan has not yet been officially scratched off from the grey list until a successful onsite visit that confirms the viability and sustainability of the measures adopted to combat money laundering and terror financing.
Since the inclusion of Pakistan in the grey list, the fear of blacklisting had been looming as a sword of Damocles over the financial supremacy of the country, but Pakistan can now heave a sigh of relief, as the FATF’s recent expression of satisfaction has averted the possibility of ‘blacklisting’ to virtually zero per cent.
In the backdrop of war in Afghanistan and the subsequent exclusion of American troops from Kabul in August 2021, the geopolitical position of Pakistan had been in a turmoil, affecting the bargaining power of a debt-laden economy in securing further loans. The IMF is placing tough conditions for every dollar extended to Pakistan, including passing the FATF test. Pakistan came up trumps in the test, so the IMF should be happier to revive the stalled $6 billion arrangement of the Extended Fund Facility (EFF) entered on July 3, 2019. If revived, Pakistan would immediately receive a $1 billion tranche sufficient to plaster the bleeding foreign exchange reserves.
The Pakistani rupee has witnessed a massive depreciation by almost 100 per cent in the last four years and has hit rock-bottom rate of Rs212 against the greenback in June 2022. Despite frequent injections of dollars into the market, the central bank was miserably unsuccessful in controlling this plummet. Undocumented outflow of dollars from the system fanned this downfall; curbing it is the ultimate need of hour, and the whitelisting would surely help cushion this freefall of the rupee.
Evidently, compliance with the stringent conditionalities on the flow of capital in the country has helped enhance trust in the banking channels and the economic infrastructure of Pakistan. The above premise is supported by the fact that workers’ remittances have recorded $28.4 billion inflows during Jul-May FY22 while $26.7 during Jul-May FY 2021; remittances have grown by 6.3 per cent as compared to the same period of last fiscal year. The eventuality of whitelisting would help bust the interest groups involved in ‘hawala’ and ‘hundi’.
As per the Transparency International Report about Corruption Perceptions Index (CPI) for 2021, Pakistan is ranked 140th in a list of 180 economies with a reported score of 28 out of 100, while its neighbour of the same age, India, is way up in the list bagging 85th position with a score of 40. One of the neglected reasons attributable to many ills of the economy is the thriving underground black market and money laundering; this has largely contributed to maligning the integrity of its financial system which stands as a precursor for its repeated economic collapse. Compliance with the FATF regime would help in integration of ill-gotten gains back into the economy with added scrutiny and would also support a fairer economy.
Out of the many economic woes of Pakistan, the one that hits hard is its low average real GDP percentage growth rate that hovers around two per cent, which is almost 2.7 per cent lower than the South Asian average. An economically stigmatized country with colossal structural inefficiencies and limited investment in capital stocks cannot expect otherwise. Previously, banks and other financial institutions were over-sceptical on account of the money trail, thus adding to the frustration of the investors, resultantly dampening their investment appetite. However, with the ongoing development in the FATF, we can expect the country to benefit from the ease of doing business with much lower costs of investment and higher levels of transparency.
Is it too early to celebrate for Pakistan? Should Pakistan remain extra vigilant over its technical progress before the FATF completes an on-site assessment? Is the visit a customary procedure or an acid test of its performance? Well, key persons from the foreign and defence ministries along with the military have expressed their strong resolve to ensure whitelisting in the next plenary meeting scheduled to be held in October 2022. In the intervening period and afterwards, Pakistan should make a lifelong commitment to repress any undocumented money dealings; Pakistan cannot afford to lower its guard.
The writer is a freelance contributor. He can be reached at:
nisarahmed.2na@gmail.com
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