ISLAMABAD/WASHINGTON/ HONG KONG: The prospect of Pakistan being placed back on a global terrorist financing watchlist could endanger its handful of remaining banking links to the outside world, causing real financial pain to the economy just as a general election looms.
Washington and its European allies have co-sponsored a motion calling for the nuclear-armed nation to be placed on a ‘grey list’ of countries deemed to be doing too little to comply with anti-terrorist financing and anti-money laundering regulations, with a decision expected next week when member states of the Financial Action Task Force (FATF) meet in Paris.
The move is part of a broader US strategy to pressure Pakistan to “do more” against militants.
Pakistan, which denies Trumps allegations terror safe havens, last month shrugged off a US aid suspension worth $2 billion. But inclusion on the FATF watchlist could inflict real damage, bankers and government officials say.
Islamabad has sought to head off the motion by amending its anti-terrorism laws and by taking over organisations controlled by Hafiz Saeed, whom Washington blames for the 2008 Mumbai attacks that killed 166 people.
But there are concerns Pakistan’s nearly $300 billion economy, expanding at its fastest rate in a decade at above 5 percent, could lose steam if it ends up on the FATF watchlist, from which it was removed in 2015 after three years.
“We don’t think the consequences are going to be drastic but it’s definitely not good,” said one senior finance ministry official.
Military successes against militants and massive Chinese infrastructure investments have restored some vim to an economy hobbled by a long-running insurgency and wrecked by the 2008/09 global financial crisis.
Officials are aiming for economic expansion to hit 6 percent this fiscal year (July-June) and Prime Minister Shahid Khaqan Abbasi’s ruling party will want to avert a slowdown in the lead up to a general election due in about six months. Being placed on the FATF watchlist carries no direct legal implications, but brings extra scrutiny from regulators and financial institutions that can chill trade and investment and increase transaction costs, according to experts. Mike Casey, a partner at law firm Kirkland & Ellis in London, said being put back on the grey list would heighten Pakistan’s risk profile and some financial institutions would be wary of transacting with Pakistani banks and counterparties. “Others might elect to avoid Pakistan altogether, viewing the legal risks associated with doing business there to outweigh any economic benefits,” he said.
A decline in foreign transactions and a drop in foreign currency inflows could further widen Pakistan’s large current account deficit, the Achilles heel of an economy that required an IMF bailout in 2013 following a balance of payments crisis.
Published in Daily Times, February 17th 2018.
