PAKISTAN’S financial hierarchy is hoping to ride through the tough patch ahead and emerge stronger. Economic stakeholders, however, are not perfectly convinced.

In the current polarised political environment they are reluctant to share their opinion publicly but their anxiety is reflected in erratic and broadly depressed activity in capital, currency, property and commodity markets.

“Holding general elections in Pakistan is in itself a huge call. At the top of that the caretaker government will have to deal with the mounting foreign financing needs as external sector challenges amplify. Already in diplomatic isolation, Pakistan’s placement on the Financial Action Task Force grey-list in June will make the arrangement of foreign funding more difficult”, a top businessman shared his views privately.

According to data from the State Bank of Pakistan (SBP) the current total foreign exchange reserves are at $17 billion and net reserves with SBP are at $10.7bn. These can cover less than three months of import bill that clocked to $38bn in the first nine months of the current fiscal against $15bn exports.

“We must engage with global partners, including FATF, and do everything in our power to meet their expectations, but at the same time we must not let their frown make us shiver”

By the year end exports are expected to touch $25bn against the import bill of $54bn, posting a trade deficit of $29bn. After assuming inflows of $20bn remittances, the current account deficit by year end is expected to be $16bn. As much as $500 million a month is used in loan repayment.

“If Pakistan fails to act promptly to appease the Financial Action Task Force on Money Laundering (FATF) by complying with its demands, other monitoring agencies may get activated to downgrade the country’s credit rating, making tapping into the international bond market both tougher and costlier.

“In case we are forced to return to the International Monetary Fund (IMF) for another bail out, our negotiating position will be weaker” the tycoon argued.

On the ‘amnesty scheme’ announced by the Abbasi government the gentleman changed his position by 180 degrees. From publicly supporting the scheme he now opposed it on the ground that it irked an already displeased global financial watchdog.

“They should have got it cleared by the FATF. We did not know the background and thought that like Indonesia Pakistan has a right to leverage the wealth parked abroad by its citizens. It was stupid of the government to do something that our global partners interpret as fiscal irresponsibility or intent to disregard their concerns.

“We must comply with international standards. In today’s globalised world no country can progress in isolation”, he argued stuttering in indignation.

The FATF is a global financial watchdog that sets standards to curb money laundering and financing for terrorism. It has evolved standards and refined mechanisms to ensure compliance.

It monitors through a stringent country evaluation, engaging new methodology that goes beyond putting the desired legal system in place. It tracks effectiveness of a national system to achieve the objective of fighting money laundering and financing for terrorism.

When reached for comment on the country’s economic isolation and FATF affairs, higher ups in the ministries of finance and planning were reluctant to discuss the issue on phone. Seniors in the State Bank promised to share information but they later excused.

Finance Minister Dr Miftah Ismail was not very worried. He told Dawn over phone that the engagement with FATF is in progress and a seven member technical team of mid-ranking officials will soon be going to Bangkok in this regard.

He asserted that the Abbasi government had not flouted standards or compromised on commitments to global financial institutions. Commenting on the reported reservations of the FATF on the Amnesty Scheme he mailed. “No it’s not true. The Amnesty Scheme is compatible with our obligations of FATF”.

A top gun, who declined to own comments, said the issue is already sensitive but its complexity is expected to increase if civil military tensions intensify in Pakistan.

“Timely elections and a peaceful transfer of power to the next elected government is the starting point for untangling the web of complicated relationships and convincing global monitors of our commitment to a decent conduct”, he reacted to a query.

“Times have changed. No one, not even our closest friends, are ready to tolerate a lack of transparency in the financial system. The perceived risks of money laundering, terror financing to the global order are too steep to permit wilful negligence.

“From grey to black list and from there to landing under sanctions will sure be the trajectory if we refuse to heed the advice to put ‘our house in order’”, he insisted in a one to one meeting.

A senior source in the government said some quarters are blowing the issue of FATF out of proportion and painting the future of Pakistan in hues of grey and black. “Yes there are challenges but after a very long time Pakistan’s economy is looking up. The multi-billion dollar CPEC projects are in progress. The inter-provincial tensions have been replaced with healthy competition.

“Pakistan has previously been on the financial watch list when its economic fundamentals were weaker. In the recent past we were on FATF grey list (2012 to 2015) but we slowly and steadily kept moving forward.

“This was the period during which we were in IMF programme and active in international bond market. So yes, we must engage with global partners, including FATF, and do everything in our power to meet their expectations, but at the same time we must not let their frown make us shiver”, he spoke with nationalistic overtones.

Published in Dawn, The Business and Finance Weekly, May 21st, 2018