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FATF grey list denting Pak economy with $38billion loss

Pakistan might be retained by FATF yet again due to the anti-money laundering and terror financing laws not being fully compliant with global standards.

The global politics in the form of Financial Action Task Force’s (FATF) for has staggered Pakistan’s economy with a loss of $38 billion attributing to the country’s placement on its grey list, thrice since 2008, Tabadlab (an Islamabad based independent think-tank) said in a research paper.

Dr. Naafey Sardar, the author of ‘Bearing the cost of global politics — the impact of FATF grey-listing on Pakistan’s economy’ highlighted the low chances of Pakistan exiting the grey list.

Pakistan might be retained by FATF yet again due to the anti-money laundering and terror financing laws not being fully compliant with global standards.

Sources said Pakistan’s progress on at least three out of six remaining action points needs more work. However, a Finance Ministry source said that nothing could be said till the formal announcement by the global watchdog.

The research paper further stated that grey-listing events spanning from 2008 to 2019, may have resulted in cumulative GDP losses worth $38 billion.

“Grey-listing events spanning from 2008 to 2019, may have resulted in cumulative GDP losses worth USD 38 billion, with this response driven by a reduction in consumption expenditures, exports, and FDI”.

The paper says.

As per the author’s claims, the data suggested that Pakistan’s removal from the grey list has at times led to economic revival as well as an economic loss even when Pakistan was not on the grey list.

A large portion of $38 billion losses can be attributed to the reduction in household and government consumption expenditures, it added.

One of the mechanisms by which FATF grey-listing can adversely affect the economy is through increased skepticism surrounding the economy’s future outlook. This will most likely lead to a decline in local investment, exports, and inward foreign direct investment.

Pakistan was placed in the FATF grey list in 2008 and exited the next year. Then again in 2012, it was removed from the list following amendments to the Anti-Money Laundering and Anti-Terrorism Act of 2015.

FATF again put Pakistan back on the grey list in 2018 following a US-sponsored move supported by the UK, France, and Germany.

The report says that maximum economic losses in any year have been in 2019, when the economy sustained $10.3 billion losses, including a $6.5 billion reduction in consumption expenditures. The second-highest losses were shown in 2010 when the country had $6 billion losses. In that year Pakistan was not on the grey list.

Following the exit from the grey list, Pakistan’s economy saw an estimated increase in GDP in 2017 and 2018. It is possible that Pakistan’s re-entry into the FATF grey list in June 2018, wiped off most of its GDP gains from the first half of 2018.

The paper highlighted that placing Pakistan on the grey list in 2018 appears to be against the FATF norms, as, the decision materializes by taking into consideration the Mutual Evaluation Report (MER) of the respective country. Pakistan has blamed the US-India nexus for its placement on the grey list, although the diplomats in Islamabad believe that the FATF put Islamabad on the non-compliant list more because of technical reasons than the political ones.

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