An immediate task for Miftah Ismail will be ensuring the revival of the stalled $6 billion IMF bailout package
After a week of political turmoil, Pakistan’s opposition parties managed to remove Imran Khan from the office of prime minister through a no-confidence resolution. This is the first time in the history of Pakistan that a prime minister has been unable to maintain the confidence of the National Assembly for a full term.
Consequent to the success of the no-confidence motion under Article 95 of the constitution and the intervention of the Supreme Court, Mian Muhammad Shahbaz Sharif, the candidate fielded jointly by the Pakistan Democratic Movement (PDM), who is also the president of Pakistan Muslim League (Nawaz), was elected as the 23rd prime minister of the Islamic Republic of Pakistan. He took the oath of his office from Senate chairman on April 11.
Shahbaz Sharif enjoys a good reputation as an administrator who delivers projects at “God’s speed”. He is said to be the key force behind overcoming the energy crisis in Pakistan. His ability to ensure governance and execution of developmental projects is well known. However, his previous experience has been limited to provincial politics and administration. Matters of national politics have remained the subject of his elder brother, the three-times prime minister of Pakistan, disqualified for life by the Supreme Court under Article 62(1)(f) of the constitution. (PLD 2017 SC 692 and PLD 2018 SC 1). Challenges faced by the federal government, especially in the current situation, will test his abilities and skill-set.
Pakistan is currently facing a series of challenges on the economic, constitutional, domestic, and international fronts. The people of Pakistan are looking forward to relief in terms of controlling inflation and providing employment opportunities so that they can easily meet their basic needs.
The outgoing government has left Pakistan on the verge of default. The foreign exchange reserves of the State Bank of Pakistan (SBP) have been depleting at an alarming pace. Pressure can further mount with global energy prices on the rise. The government of Pakistan Tehreek-i-Insaaf (PTI) left reserves at $17.4 billion and dollar to rupee parity at one dollar equalling Rs 189, the highest in our history.
Pakistan needs immediate financial support from international lenders and friendly countries to keep its reserve at a reasonable level. The most immediate task for Miftah Ismail and his team will be the revival of the stalled $6 billion bailout package of the International Monetary Fund (IMF). Our constant non-compliance with agreed terms has put the continuation of this programme in danger.
The current fiscal year, ending on June 30, will have a historic high current account deficit (CAD) and unsustainable fiscal deficit of over Rs 4 trillion. The new government, thus, has no option but to raise taxes on already struggling businesses and the salaried class as well as increase prices of petroleum products and electricity to close these gaps.
Apart from these internal challenges, the new coalition government will have to deal with the Financial Action Task Force (FATF) in June 2022. Despite giving a high-level political commitment to work with the FATF and the Asia Pacific Group (APG) to strengthen its anti-money laundering and combating financing of terrorism (AML-CFT) regime, Pakistan has missed out on various deadlines to implement the first action plan. Further, in June 2021, the FATF included an additional six-point action plan to be completed by June 2022 — it was based on the anomalies highlighted by the APG in the mutual evaluation report published in 2019 and follow-up reports. However, after almost four years Pakistan is still on the list of jurisdictions under increased monitoring.
The outgoing government has left Pakistan on the verge of default. The foreign exchange reserves of the State Bank of Pakistan (SBP) have been depleting at an alarming pace.
Pakistan’s compliance level as per the updated consolidated assessment ranking was last assessed as fully compliant on eight recommendations, partially compliant or with moderate shortcomings on three, largely compliant on 27 with minor shortcomings and non-compliant or with major shortcomings on two recommendations. Pakistan’s effectiveness was rated on a scale of high, substantial, medium, and low levels of effectiveness and based on 11 immediate outcomes (IOs). Pakistan’s levels of effectiveness were rated low on 10 and medium for one outcome (related to international cooperation).
With this level of compliance, Pakistan might not be able to impress the FATF in the upcoming plenary meeting. The FATF review process to identify jurisdictions with strategic deficiencies placing those on its list of jurisdictions under increased monitoring. It includes countries that achieve poor results on its mutual evaluation. It specifies the criteria as having 20 or more non-compliant (NC) or partially compliant (PC) ratings for technical compliance; or it is rated NC/PC on 3 or more of the following recommendations: 3, 5, 6, 10, 11, and 20; or it has a low or moderate level of effectiveness for 9 or more of the 11 immediate outcomes, with a minimum of two lows; or it has a low level of effectiveness for six or more of the 11 immediate outcomes.
During these four years, our focus remained on addressing technical compliance, despite the reservation of the FATF and other leading international institutions. We hardly bothered to address the anomalies in our basic AML-CFT operational framework. A Financial Monitoring Unit (FMU) was established in 2007. In February 2015, it got the status of an autonomous body. This so-called autonomous body is supervised by the general committee consisting of federal cabinet secretaries including the chairman of the National Accountability Bureau. The general committee is subservient to the National Executive Committee comprising ministers seen as politically exposed persons (PEPs) so that their involvement in dealing with the AML-CFT-related matters is treated as high risk.
The new law, as drafted, is complicated and confusing. It includes multiple bodies and committees with overlapping jurisdiction and scope. For example, lawyers and accountants, who are considered vulnerable to money laundering and terrorist financing, have been given the power to self-regulate themselves. This new law also gives powers to professional bodies to act as appellate authorities. This goes against the principles of independence and could lead to conflict of interest.
A comparison of our progress and the requirements for immediate outcomes to assess effectiveness of our system shows that we have not been following the international best practices to address the FATF concerns.
While it appears difficult for Pakistan to satisfy the FATF concerns in the upcoming meeting, it actually depends on the personal interest exhibited by the prime minister, the Foreign Office, and the PM’s team handling the FATF-related issues. It is high time for the government to revisit laws, rules and regulations already in place to address the concerns related to risk, policy and coordination.
The government should also focus on addressing the concerns with respect to legal persons, trusts and other legal arrangements. Since non-profit organisations are more vulnerable to money laundering, the government should initiate a comprehensive risk assessment of all other work and funding than their designated domain. Pakistan should also take strict actions against banned outfits and investigate their sources of funding assessing risks associated with new technologies.
Similarly, we must work on the improvement of operational regime and minimise the role of politically exposed persons in dealing with AML-CFT-related decisions. A major challenge for the new government is to satisfy the FATF concerns so that we can get respect at the global level. This will only be possible when we are fully aware of our responsibilities and have experts handling such matters. Continuing with the status quo will further shake the trust of foreign investors and impact our economy.
Abdul Rauf Shakoori is a corporate lawyer based in the USA
Dr Ikramul Haq, Advocate Supreme Court, is adjunct faculty at Lahore University of Management Sciences (LUMS)