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*The hanging sword of FATF*

_Author: Muhammad Ziauddin_

_Published in: The Express Tribune_

Published on: May 11, 2019. A face-to-face meeting between Asia Pacific Group(APG) of the Financial Action Task Force (FATF)and Pakistan is scheduled later this month, to be followed by the Task Force undertaking itspenultimate review of Pakistan’s progress earlynext month. The sword of the FATF, it seems, willcontinue to hang over our heads until after
September this year when we would know ourfate: whether we continue to remain in the grey listor are taken out of it or consigned to the black list. It is perhaps because of our entanglement with theFATF that the IMF was seen to be dragging its feeton the matter of finalising a programme that weneeded urgently as our foreign exchange reservesof around nine billion dollars mobilised throughshort-term loans from friendly countries havealready disappeared. What is extremely worrying is the very governingstructure of the APG which is exceptionallyunfriendly. A very hostile US is the President of the
FATF represented by Marshall Billingslea, a servingAssistant Secretary of US Treasury who also headsthe office of Terrorist Financing Crimes. Australiawhich is part of the anti-China (read Pakistan as well)Indo-Pacific alliance is the President of the APG andIndia which has already vowed to isolate Pakistan
economically is the Co-chair of the APG. With sucha formidable combination of hostile forces sittingon the review panel, one cannot rule out thepossibility of handing out a rigged judgment. Theonly redeeming feature in the administrative set-up
is China which sits on the FATF as its Vice-Presidentrepresented by Liu Xiangmin, Director General ofthe Legal Department at the People’s Bank of China. Equally worrisome is the fact that the EuropeanCommission (EC) has already placed Pakistan inits list of inadequate jurisdiction on Anti-MoneyLaundering and Counter Terror Financing regimes. If in such a situation we are pushed into the ‘blacklist’ by the FATF for no genuine fault of ours, it willunleash serious economic and financial impact down the stream causing immense damage toPakistan’s economy. The most obvious result would be the cost ofdoing a financial transaction through establishedbanking/ financial system, increased premium onPakistani instruments in the international capitalmarkets, and the multilateral financing
organisations would add risk premiums to anymoney borrowed. Black listing will squeezePakistan’s economy further and make it harder forthe country to meet its mounting foreign financingneeds, including potential future borrowings fromthe IMF. And if we remain in the ‘grey list’ it couldlead to a downgrade in Pakistan’s debt ratings, making it more difficult to tap into theinternational bond markets. Further, it would leadto the downgrading of Pakistan’s financial viability. The situation becomes all the more critical whenseen in the context of the country’s current
economic data: exports $23 billion, imports $42billion, remittances $19 billion, fiscal deficit 6%of GDP, tax-to-GDP ratio 12% and inflation 8%. And if this data is analysed against the projectionsof GDP growth rate by the three major multilateralaid agencies, we seem to be falling of the cliffsooner than later. According to World EconomicOutlook report of the IMF, Pakistan’s GDP wilGDrow at 2.9% in FY 19 and 2.8% in FY20. Similarpreojections have been made by the World Bankand the Asian Development Bank. This would mean Pakistan’s GDP currentlyestimated at $320 billion would shrink by 2020to around $280 billion which would mean ourrevenue collection ability would decline furthereven with accelerated efforts to expand the taxbase ending next financial year with a fiscal deficitmuch larger than the current estimate of anunsustainable 6%. In the meanwhile, the indirect costs like increasein inflation, increase in the discount rates, declinein industrial productivity, decline in exports, deterioration in currency etc, and stagnant inflow of FDI will adversely impact the overall economy.