Opinion: Pakistan will face major economic loss after FATF puts it on grey list of terror financing

When the Plenary meeting of Financial Action Task Force started in Paris on 18th February 2018, they had an important matter to discuss. In 2012, it had put Pakistan, the 'nuclear-powered' nation, in its Terror Financing Watchdog list as grey. The effect caused a significant damage to their economy and after three years in 2015, it was finally bailed out because of country’s repeated assurances and influence of some of the world leaders. 

As a cautionary advice, Pakistan was told to crack down on Terror Financing or else face the threat to be put on the list again. One of the main agenda for the February 2018 Plenary sitting was to discuss this as Pakistan failed to act drastically. Jamat-Ud-Dawah, Taliban, and Haqqani network took advantages of Pakistan’s poor anti-money laundering laws to promote terrorism globally.

Unlike other international organisations, Financial Action Task Force for Money Laundering (FATF) was formed by G-7 Countries in 1989 to primarily target money laundering and since a significant portion of money laundering goes to fund terror activities, terror financing became an integral part of FATF discussions. Immediately after 9/11, FATF drafted 8 recommendations to stop terror financing and since then its Financial Intelligence Unit had been monitoring the financial network of various terrorist organisations worldwide. 

As on date, it has 35 permanent members and two regional organisations named European Union and Gulf Co-operation Council (GCC) which are being represented by Saudi Arabia. As per the rules of FATF, any motion brought by a country can only be opposed by a minimum of three members. 

Pakistan was threatened by the bill proposed by the United States to put the country back on Grey list of FATF. Their economy was going through the worst phase since 2012. The government is unstable and their debt is rising sharply. The external debt which was close to $66 Billion is now going to touch $100 Billion anytime and Current Account Deficit (CAD) which was less than a $ Billion in 2012 is now eager to cross the mark of $5 Billion. The economy is supported by some of the international Banks and financial organisations which are expected to have a negative effect in case of passing of this bill. Ultimately, foreign transactions are expected to decline which may result in widening the CAD significantly. 

It was a do or die situation and, hence, Pakistan started campaigning among countries friendly to it in order to turn down the motion. Its ministers and diplomats made trips to China, Turkey, Malaysia, Russian Federation and members of GCC to garner support. Some of them assured the support too and as a result when on 18th February 2018, at the first meeting, when the United States of America proposed the bill for putting Pakistan in the grey list of terror financing countries, it received a strong opposition from China, Turkey and Saudi Arabia who was representing GCC. Since the opposition of this bill required three countries, it was destined to be rejected. 

One of the representatives of these countries even informed Pakistan that the country will be bailed out this time and, in rejoice, one of their ministers tweeted too but the outcome had not been announced yet. The international diplomacy hasn’t started yet. India is a permanent member of FATF and, on seeing this, partnered with the US and pursued hard to turn down the opposition. Soon the first talks were held with Saudi Arabia to convince it. It was reportedly said that United States offered Saudi Arabia a permanent seat in FATF in case it supports the move and the carrot diplomacy paid up. Saudi Arabia assured to back the bill. 

The only two countries left were China and Turkey and it was a tricky situation for China now. In the absence of Saudi Arabian support, the bill was expected to be passed and in such case both the opposing countries would have been labelled as supporters of terrorism. So, for the sheer face-saving, China also agreed to support the move. However, it did try to negotiate with US and India to justify its stand.

As soon as the US was sure of getting the bill passed, it called another meeting on 22nd February 2018 and arranged for voting. The motion passed by 36-1 and only Turkey opposed it. FATF decided to put Pakistan on the FATF Grey list of terror financing countries with effect from June 2018 as the process and formal announcement takes time. 

While this move is welcomed and will be helpful in cracking down on terror financing, it is highly detrimental to the economy of Pakistan too. On one hand it will discourage new potential investors to come to Pakistan and on the other hand, the existing investors will wary of transacting with Pakistani Banks. Assessing funds from International Agencies like IMF will be much tougher as they will put more conditions to be fulfilled before releasing the funds. International financial institutions which form a major part of Pakistan economy might decide to pull out in due course of time and even if they don’t pull out immediately, their due diligence in disbursement will become much stricter. 

International rating agencies are going to downgrade Pakistan for sure which may affect international transactions and foreign-exchange inflow and ultimately the CAD and Pakistan economy. 

In case, it does not show visible signs of improvement after June 2018, Pakistan may further go into the Blacklist of Countries financing terrorism which will call for worldwide sanctions and act as a doomsday for Pakistan. The country is going to polls this year and there is no stable government to take strong financial decisions. With the disqualification of former PM over the corruption and money laundering charges and absence of any other strong leader, it is likely that the new government may be a puppet in the hands of Pakistan Army or the radical elements. If any such situation arises, it will be impossible for Pakistan to recover.
 

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)