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Positive Impacts of Pakistan Exiting FATF’s Grey list

By 24/10/2022 0 Comments

The international watchdog against money laundering and terror financing, the Financial Action Task Force (FATF), removed Pakistan after 4 years (2018-2022) from the list of countries under “increased monitoring”, also known as the “grey list”, on the 21st October 2022.

As shown in the table below, Pakistan has complied with only one recommendation in 2019 and 9 in 2022. This has adversely affected foreign capital inflows and trade, and make it difficult for Pakistan to access the global capital market. However, the number of largely compliant recommendations has increased from 9 to 29.

Being on the grey list highlights the flaws in the financial and banking system. Pakistan was previously placed on the grey list in 2008 and 2012-2015. The research has shown that FATF sanctions between 2012 and 2015 have surged economic costs by approximately $13.4 billion. This status of a country urges doubts about the financial system as foreign investors and financial institutions demand a higher level of due diligence.

Pakistan has been removed from the FATF list amidst an adverse economic crisis, giving hope to the country to improve economic growth. It will depict a positive image of Pakistan and boost investors’ confidence. It will increase the capital inflow, remittances and trade. Moreover, international donor agencies, including IMF and ADB, will sanction loans easily, and in the current scenario, the country direly needs a foreign reserve to sustain itself.

FATF grey-listing has enabled policymakers with the political impetus to undertake long-term structural reforms in the criminal justice sector, banking and finance, regulatory compliance and initiate checks and balances. The exit of Pakistan from the grey list has reduced scrutiny in financial governance institutions, decreasing the cost of doing business. Despite this progress, the country has to continue working on improving the regulatory framework to reap more benefits. These constant efforts will effectively reduce the risk and encourage investors to invest.

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