Putting back Pakistan on grey-list of countries, having weak anti-money laundering and counterterrorism financing regime, was not unexpected keeping in view the obdurate and unwise response of previous PML-N government to the Financial Action Task Force (FATF) decision of February 22, putting the country on watch-list for the next four months with the advice to put the house in order failing which it will be back on the grey-list. The FATF did not accept the proposed action plan of International Cooperation Review group (ICRG) of Asia Pacific Group (APG), which Pakistan promised to be implemented by the next elected government.
Although speculations as to which political party will win the upcoming polls and form government is a premature proposition, yet the foreign office is optimistic that Pakistan could be removed from the grey- list provided it effectively implemented the plan negotiated with the watch-dog. Earlier, the trouble shooter caretaker Finance Minister Dr. Shamshad Akhtar, who is endowed with the outstanding capability of convincing the international organizations, has urged the FATF to remove Pakistan from grey-list but to no vial. Perhaps the legacy of trust deficit left by previous government was difficult to be disposed of.
Just three days before the February 20 meeting of FATF, US State Department Spokesperson Heather Nauret had expressed concern in a press briefing over, what she called, Pakistan’s deficiencies in implementation of money laundering and counter terrorism laws. She told reporters the US had been concerned for a long about actions of Pakistani authorities. She said that after placing Pakistan on watch-list more actions will follow which she did not disclose.
Being put back on the grey-list would tighten Pakistan’s risk profile and some financial institution will be wary of transacting with its banks and other counterparts. Others might prefer to avoid dealing with Pakistani banks, viewing the legal risks associated with doing business with them as it will outweigh any economic benefits. A decline in foreign transactions and drop in foreign currency inflow could further widen the current account deficit. If one has to decipher the Ms Naurets’ phraseology of other likely actions, the chances of much needed International Monetary Fund (IMF) next bailout will be slim. At present Pakistan badly needs $ 26 billion from IMF, World Bank and other international financial institutions for balance of payment obligations, payment of external debt and budgetary support. Likewise it may affect the disbursement of project loans that are in the pipeline from World Bank and Asian Development Bank. Foreign banks like Standard Charter Bank, Citi Bank and Dutche Bank, who mostly deal with corporate entities, may pull out. It is pertinent to mention that in September last year Habib Bank was fined $ 222 million by New York regulator and effectively forced to shut its operation in the US.
The country is in fragile state due to the disastrous economic policies of the PML-N government. The grim scenario is reflected in the 75 percent utilization of foreign loans on non-productive expenditure. The current account deficit has swelled to $ 32 billion and budget deficit has gone up to 6 percent of the GDP. Raising foreign capital and arranging badly needed inflows will be extremely difficult after this development. Moody’s Investors Services and Fitch credit rating agency has already pained a negative outlook of Pakistan’s economy. The assessment of these top credit rating agencies will raise the cost of future money lending to Pakistan and scare away both domestic and foreign investment.
The world is getting united against terrorism. The United States and India are in unison in charge sheeting Pakistan time and again, what they allege harboring terrorist heavens. The recent interview of former disqualified Prime Minister Nawaz Sharif to Cyril Aleda of daily Dawn about 26/11 Mumbai terror attacks buttresses the US-Indian narrative against Pakistan. The badly timed move of unfreezing the assets of a sectarian organization to which Lej is believed to be affiliated will also further tarnish the image of Pakistan in the international community. There seems no escape from the actions to be taken sooner or later in accordance with the provisions of United Nations Security Council resolutions 1267 and 1373 if diplomatic isolation in the comity of nations is to be avoided. Abandoning by China and Saudi Arabia at FATF vote in February should serve an eye opener for the decision makers.