Pakistan assures to fully implement FATF action plan by February

Islamabad has until February 2020 to fully implement the given action plan.. (Photo courtesy: FATFNews/Twitter)
Updated 22 October 2019

Pakistan assures to fully implement FATF action plan by February

  • Global watchdog warned Pakistan would be placed in blacklist if swift actions were not taken
  • Experts doubt the capacity of Pakistan's implementation institutions to overcome deficiencies in such a short time

KARACHI: Pakistan has reiterated its commitment to fully comply with the recommendation of the Financial Action Task Force (FATF) by February 2020 to avoid the country’s blacklisting. However, experts doubt the capacity of relevant institutions to overcome the deficiencies needed to improve implementation in such a short time.
Pakistan managed to retain its place in FATF's grey list after the review in Paris last week, but the global watchdog explicitly warned Islamabad to curb terrorist financing or face blacklisting.
Islamabad has until February 2020 to fully implement the given action plan.
“Pakistan agreed to national action plan to fix serious weakness in anti-monetary laundering and terrorist financing framework. Despite high level commitment to fix these weaknesses Pakistan has not made enough progress. Pakistan needs to do more and it needs to do it faster,” Xiangmin Liu, president of the FATF, said at a press conference in Paris on Friday.
Liu warned that Pakistan would be placed in blacklist if swift actions are not taken. “FATF is giving this very clear warning…. if by February 2020 the country has not made significant progress we would consider further actions.”
Pakistan has reiterated its commitment to fully implement action plan to counter money laundering and terror financing within the given timeframe.
“On this issue government’s all institutions are on the same page. All institutions are committed to fight money laundering and terrorist financing,” Dr Abdul Hafeez Shaikh, adviser to the prime minister on finance and revenue, who is currently visiting the United States told journalists in Washington on Sunday.
According to the FATF Technical Compliance Index, out of a total of 40 recommendations, Pakistan was fully compliant with only one, largely compliant with nine, partially compliant with 26 and non-compliant with four recommendations.
“I think Pakistan will be able to meet its target if proper efforts are made because it is largely compliant in most categories and non-compliant in only four,” Dr Salman Shah, former finance minister, told Arab News.
However, experts believe the targets were hard to meet within a span of four months as the implementing institutions lacked capacity.
“In my personal view, this work cannot be done in four months. Technical institutions involved here need capacity building with requisite technical advice. The banking and surveillance institutions involved lack capacity. Efforts are needed to improve their capacity,” said Dr Vaqar Ahmed, joint executive director of Islamabad based Sustainable Development Policy Institute (SDPI).
He suggested that FATF and Asia Pacific Group (APG) should first provide the technical training and know-how to Pakistani institutions and then demand implementation inline with the training provided.
Many Pakistani experts also believe that the country is on the right track and maltransactions have reduced significantly. “It's hard to say if Pakistan can achieve targets for sure. But we are on the right track. The reported maltransactions have reduced significantly since the past year. But we have to be very vigilant to meet the February deadline because the repercussions are enormous”, said Komal Shakeel, Economic Policy Consultant at the Asian Development Bank (ADB).
Shakeek said that “in the context of slowed growth predicted by major international agencies and the dire need for Pakistan to expand export led growth, this [blacklisting] will be a huge blow to Pakistan's trade. Foreign exchange reserves may suffer greatly, and a blow to GDP growth may eventually lead to stagflation.”
To avoid further downgradation in February next year, Dr Ahmed suggests expedited diplomatic efforts to complement the implementation of the action plan. “Malaysia, Turkey, Saudi Arabia and China can play a big role in further relaxation in February 2020. We need to actively engage ourselves diplomatically with these four countries,” he said.


Pakistan seeks Arab creditors, China to convert $7.7 bn into long term loans — Hafeez Shaikh

Updated 02 June 2020

Pakistan seeks Arab creditors, China to convert $7.7 bn into long term loans — Hafeez Shaikh

  • Pakistan received $3 billion BoP support from Saudi Arabia, $2 billion from the UAE and $2.2 from China
  • Conversion of short term deposit will provide long term financial stability to the country, say experts

KARACHI: Pakistan is in talks with Saudi Arabia, the United Arab Emirates and China to extend the tenure of their $7.7 billion short term deposits, a move that will ensure long term forex stability of the South Asian nation, Dr. Abdul Hafeez Shaikh, the prime minister’s adviser on finance and revenue, told Arab News in an exclusive interview.
“Last year, when Pakistan was going through the worst balance of payment (BoP) crisis in our history, we were provided financial support by our brotherly countries,” Shaikh said on Monday.
Pakistan’s friendly countries were approached by the government of Prime Minister Imran Khan soon after assuming the office in 2018 as the country’s current account deficit reached $20 billion.
Responding to Pakistan’s call, Saudi Arabia deposited $3 billion while the UAE and China deposited $2 billion and $2.2 billion, respectively. Qatar also contributed by depositing $0.5 billion with Pakistan’s central bank.
“The $7.7 billion secured from the bilateral arrangements provided the much needed balance of payment support to Pakistan,” he added.
“These are short term deposits placed with the central bank in Pakistan at concessional rates,” the PM’s adviser said, adding: “We are in talks with our development partners to move these deposits toward longer tenors.”
Economists say these deposits provided a lifeline to the country’s economy that had higher imports and lower exports.
“The balance of payment support oxygenated the country’s economy that was much need for its survival. The support helped Pakistan not to default on its foreign payment obligations,” Muzzamil Aslam, senior economist, who is familiar with the developments, told Arab News.
Pakistan’s current account deficit (CAD) was $20 billion in 2018 which declined to $13.43 billion during the last fiscal year. Its further decline is also projected for the current fiscal year (2019-20).
“CAD is projected to decline to $4b [or 1.7 percent of the GDP] in the current fiscal year, compared to $20b when the government took office in 2018,” Shaikh said.
The major balance of payment support came from Saudi Arabia which provided $6 billion in financial assistance to Pakistan, with $3 billion in foreign currency support and $3 billion worth of oil on deferred payments. The agreement was signed during the visit of Prime Minister Imran Khan to the Kingdom in October 2018.
Economists say when Pakistan approached the International Monetary Fund (IMF) for the bailout program, the United States had expressed concerns that the money could be used to pay off debts, especially those taken from China.
“After we started getting the IMF assistance, the fund imposed a condition during the first review of the program to roll over these loans instead of paying them back. This was because the US had misgivings that Pakistan will pay the Chinese debt with the IMF money,” Aslam said.
However, the IMF acknowledged in April that “Bilateral creditors have maintained their exposure in line with debt sustainability objectives of the EFF [Extended Fund Facility].”
China maintained their exposure by renewing $2 billion bilateral deposits in March. Saudi Arabia also refinanced $3 billion BoP support loans that matured in November-January, while the UAE rolled over $1 billion BoP support loans in March. The oil facility with Saudi Arabia – worth $3.2 billion – was activated in August 2019 and has also been providing support to the balance of payments, according to the IMF documents.
Instead of frequent rollovers now, the government wants to convert these short term deposits into long tenors. “The IMF is behind this strategy,” Aslam informed. “The conversion will impact the status of these deposits in a way that loan rates will be decided in line with the international benchmark which may be LIBOR+2-3 percent.”
Economists say the conversion of these deposits will positively impact the economy of the country since Pakistan will get some breathing space and an opportunity to improve its overall financial condition. “It will provide long term forex stability. Otherwise, we will be under pressure to pay back $7.7 billion,” Aslam said.