“And We will surely test you with something of fear and hunger and a loss of wealth and lives and fruits, but give good tidings to the patient.”
Al-Quran (2:155)
In June 2018, the international watchdog on money laundering and terror financing, Financial Action Task Force (FATF) placed Pakistan in increased monitoring list (grey list) for the third time on concerns of money laundering and terror financing. On June 17, 2022, FATF, in its cyclical plenary meeting in Berlin, lauded Pakistan’s efforts over addressing all 34 action points on two concurrent action plans, however, President FATF, Dr. Marcus Pleyer, has clearly remarked that Pakistan has not yet been officially scratched off from the grey list until a successful onsite visit confirming viability and sustainability of the measures adopted to combat money laundering and terror financing.
Since the inclusion of Pakistan in grey list, the fear of blacklisting had been looming as a sword of Damocles over the financial supremacy of the country, but with the long-awaited satisfaction of FATF over Pakistan’s commitment to combat terror financing and money laundering, Pakistan can now heave a sigh of relief, as this has averted the possibility of “blacklisting” to virtually zero percent.
In the backdrop of war in neighboring Afghanistan and subsequent exclusion of American troops from Kabul in August 2021, the geopolitical position of Pakistan had been in a turmoil and this has aggravated the bargaining power of a debt-laden economy in securing further loans. International Monetary Fund (IMF) is placing tough conditions for every dollar extended to Pakistan including passing FATF test. Pakistan came up trumps in the test, therefore IMF would be happier to revive the stalled $6 billion arrangement of Extended Fund Facility (EFF) entered on July 03, 2019. If revived, Pakistan would immediately receive a $1 billion tranche sufficient to plaster the bleeding foreign exchange reserves.
Pakistani currency has witnessed a massive depreciation by almost 100% in the last four years and has hit rock-bottom rate of PKR 212 against “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 and curbing it is the ultimate need of hour to prevent further blood bathing, hence whitelisting would surely help in cushioning this freefall of PKR.
Evidently, compliance with the stringent conditionalities on the flow of capital in the country has helped in enhancing trust in the banking channels and economic infrastructure of Pakistan. The above premise is supported by the fact that the 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% as compared to the same period of last fiscal year. The eventuality of whitelisting would help in busting the interest groups involved in “Hawala” and “Hundi”.
As per Transparency International Report about Corruption Perceptions Index (CPI) for 2021, Pakistan is ranked 140th in the list of 180 economies with a reported score of 28 out of 100, while its same age neighbor, 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 and 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 support in establishing a fairer economy.
Out of many economic woes of Pakistan, one that hits hard is its low average real GDP percentage growth rate hovering around 2%, which is almost 2.7% lower than the South Asian average. An economically stigmatized country with colossal structural inefficiencies and limited investment in capital stocks cannot expect otherwise. Previously, the banks and other financial institutions were over skeptical on account of money trail thus adding to the frustration of the investors, resultantly dampening their investment appetite. However, the ongoing development with the FATF program, we can expect the country to benefit from the ease of doing business with much lower costs of investment and higher level of transparency.
Is it too early to celebrate success for Pakistan? Should Pakistan remain extra vigilant over its technical progress achieved so far on action plans before FATF completes an on-site assessment of the points? FATF on-site visit, a customary procedure or an acid test of its performance?
Well, key persons from foreign and defense ministries along with the military head of Pakistan have expressed their strong resolve to 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 lest it will have to bear irreversible damages.
