Pakistan's Economy Will Be Tattered If It Comes In FATF List

The FATF, an intergovernmental body aimed at maintaining global financial stability by monitoring terror financing, money laundering, etc., which held its plenary meeting in February this year, will meet once again next month.

Pakistan’s already fragile economy, which is practically running on financial aid, will be brutally impacted if Islamabad is placed on the FATF list. Earlier, Pakistan-based think tank Tabadlab had reported that "FATF grey-listing, starting in 2008 and till 2019, may have resulted in cumulative real GDP losses of approximately $38 billion."

Analysts believe the actual blow to the country’s GDP this time round would be significantly higher.

Typically, the FATF, of which India is a member, holds its plenary meetings three times a year. The outcomes of these meetings have a far-reaching impact on the global economic order.

Inflow of international aid and investments typically shrinks for countries that are listed by FATF. Rating agencies also keep a close eye on their economic dynamics, which can impact the sovereign rating.

Pakistan's Falling Status

The FATF had put Pakistan on the FATF grey list in June 2018. The country exited the list in October 2022. Islamabad had been put on the list for the first time in 2008. Though it managed to exit the FATF list in 2009, it was under watch from 2012 to 2015.   

Even as the country was removed from the FATF list due to adequate improvement in handling issues related to terror financing and money laundering, Pakistan’s internal security as well as socio-economic conditions have not improved.

In March, the US State Department issued a notice urging its citizens to refrain from travelling to Pakistan. The notice read: “The government of Pakistan restricts the travel of US government personnel working in Pakistan. The US government has limited ability to provide services to US citizens in the KP province, Balochistan province, Pakistan-occupied Kashmir, and most areas outside of Islamabad, Lahore and Karachi. Due to the risks, US government personnel working in Pakistan must obtain special authorisation to travel to most areas outside of Islamabad, Lahore and Karachi.”

Bipartisan Consensus In India

The Opposition Congress party has now asked the government to put pressure on the International Monetary Fund (IMF) to refrain from providing loan assistance to Pakistan. Sources have already said the government will take up this issue at the appropriate forums.

While there were reports claiming that Finance Minister Nirmala Sitharaman had raised the issue of choking aid to Pakistan at the Asian Development Bank’s (ADB's) annual meeting, the multilateral lender issued a clarification stating that “issues related to Pakistan were not discussed”.

Typically, India abstains from voting on Pakistan's financial assistance packages at the IMF. “This time, it could officially vote against Pakistan, though no decision has been taken,” a source said.

Meanwhile, India has replaced K V Subramanian, who was serving as Executive Director at the IMF. The government has temporarily designated Parameswaran Iyer for this critical role.

The Secretariat had earlier reported: “It is to be noted that the government’s decision has ramifications with regard to the meeting of the IMF Executive Board, which will be held on May 9, in which the Board is scheduled to take a call on a new US$ 1.3 billion loan to Pakistan under a climate resilience credit programme, along with the first review of an ongoing US$ 7 billion bailout package for India's neighbour.”