Pakistan’s Successful FATF Completion Has Short- and Long-Term Benefits

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Pakistan's Successful FATF Completion Has Short- and Long-Term Benefits
Pakistan's Successful FATF Completion Has Short- and Long-Term Benefits

Blog Introduction: It’s official – the Financial Action Task Force (FATF) has taken Pakistan off the so-called grey list, with associated benefits likely to go beyond just a reputational boost. The move recognizes the progress Pakistan has made against money laundering and terrorist financing, setting the stage for both short- and long-term gains.

The FATF placed Pakistan on the grey list in June 2018, declaring the country non-compliant with recommendations of the global money laundering and terrorist financing watchdog. It acknowledged in June 2022 the progress Pakistan had made against all 34 action points, saying a final decision would be taken after an on-site visit to Pakistan.

blog Body: “This positive development bodes well for Pakistan’s economy in multiple ways,” said Fitch Solutions Country Risk and Industry Research in a report. “Aside from improved perceptions of Pakistan’s business environment and risk profile, financiers will be more willing to lend to Pakistani corporates, which in turn will support economic activity.” The World Bank has forecast GDP growth of 3% for FY22 (July 2021-June 2022), up from an expected 2.4% in FY21. The central bank expects remittances to grow by 5% to $23 billion in FY22 on the back of higher oil prices and increased labor market activity in major host countries such as Arabia, the US, the UK, and Europe. Inward worker remittances rose 8.1% y/y to $20.6 billion in 10MFY21 (July-April).

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Pakistan is also seeking inclusion in global supply chains as part of its post-pandemic economic recovery strategy. “The country’s participation in global value chains allows it to quickly reap rewards through an immediate increase in exports and investment as we have witnessed during 4QCY20 following the relaxation of FATF Grey List provisions,” noted Topline Securities Limited in a report last week. “In our opinion, this would be the first major development towards integration of Pakistani economy with global supply chains.” Exports grew 21.4% y/y to $2.9 billion in April as compared to a contraction of 13.7% y/y recorded last year, according to PBS data. Overseas sales of textile products jumped 48% y/y while those of rice surged 178%. However, on a m/m basis, exports contracted 5% due mainly to lower knitwear (-8%), bed linen (-5%), readymade garments (-5%) and cotton cloth (-3%) shipments during the month. Conclusion: In conclusion, FATF’s decision is good news for Pakistan’s economy, both in the short term and long term prospects. Improved perceptions of Pakistan’s business environment and risk profile will encourage financiers to lend to Pakistani corporates, which will support economic activity.” The World Bank has forecast GDP growth of 3% for FY22 (July 2021-June 2022), up from an expected 2.4% in FY21 thanks in part to FATF’s recent decision

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