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Pakistan economy locked in tailspin; IMF bailout in danger, $10 billion hit due to FATF blacklist

Samrat Sharma
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In a major blow to Pakistan’s economy, blacklisting by the Asia-Pacific Group of the Financial Action Task Force (FATF) may put at risk the impending $6 billion IMF bailout, and cause a loss of $10 billion per year to the country. Pakistan is already reeling under severe stress, with foreign investment dwindling, and funding avenues drying up to keep the country afloat. Foreign investment in Pakistan has taken a major hit. At USD 1.2 billion, Foreign Private Investment in Pakistan fell to less than half in FY19, compared to USD 3.2 billion in the previous year.

Similarly, Foreign Public Investment has also declined with the same intensity in the last year in Pakistan, according to the Ministry of Commerce, Pakistan. One of the major sources of external assistance to Pakistan, the US has also substantially reduced its aid to the country. In 2017, the US disbursed USD 893 million to Pakistan, which reduced to a mere USD 438 million in 2018, data sourced from USAID. “Pakistan is a weak economy that largely depends on foreign aid. If the external assistance is blocked, Pakistan will be deeply shattered,” Madan Sabnavis, Chief Economist, Care Ratings told Financial Express Online.

Pakistan continues to remain in the 'Grey List' and that reflects its downgrading by the IMF, the World Bank, the ADB, the EU and also a reduction in risk rating by Moody's, S&P and Fitch. Pak Foreign Minister S M Qureshi had said that the foreign office is calculating the annual loss faced by Pakistan if the country remains in the grey list. He also added that the Pak government has calculated that Pakistan will face USD 10 billion every year for remaining in the grey list. Further deterioration in the grade is likely to add to Pakistan’s worry.

The major compliance of FATF on money laundering requires countries to criminalise money laundering, terrorist financing and proliferation financing in accordance with international law. The task force also demands the countries to freeze the assets of terrorists and to establish a financial intelligence unit to collect and analyse reports from financial institutions. Failing the above conditions, FATF degrades a country’s ranking which makes it difficult to get loans from international credit agencies or even attract foreign investments. Pakistan is currently going through one of its worst economic crisis.