Markets Respond to FATF Resolution
It’s official: Pakistan has officially been removed from the Financial Action Task Force’s (FATF) “grey list,” which will likely have benefits beyond merely a boost to Pakistan’s reputation. The action paves the way for both immediate and long-term gains by recognising the strides Pakistan has made in combating money laundering and terrorist financing.
In June 2018, the FATF declared Pakistan to be in violation of the global money laundering and terrorist financing watchdog’s recommendations and put the nation on the grey list. It stated in June 2022 that Pakistan had achieved progress on all 34 action points and that a final decision will be made following a visit there.
According to a report by Arif Habib that was made public before to the highly anticipated FATF verdict, “this good development bodes well for Pakistan’s image,” which was recently damaged by credit rating downgrades. It is anticipated that being taken off the “grey list” will not only assist investors rebuild trust but also open the door for rating upgrades and re-ratings.
According to the report, Sana Tawfik, a senior analyst at Arif Habib.
This news is anticipated to have a good impact on the markets, and general optimism is anticipated to last for some time.
Markets Respond to FATF Resolution
Foreign Direct Investment and the IMF
One of the structural benchmarks established by the IMF was for Pakistan to remove itself from the FATF’s list of countries with serious deficiencies. By doing so, Pakistan has met an additional IMF requirement in advance of the ninth review, which is due in November 2022. If the evaluation is successful, the fund would be able to distribute 894 million in SDRs.
According to the Arif Habib report, the most recent development should also assist Pakistan in attracting long-term external assistance and foreign direct investment. For FY23, Pakistan’s total external funding needs are anticipated to be slightly higher than $31 billion, compared to an estimated $37 billion in available financing, including IMF assistance.
Even though it may have ended a little early than many people anticipated, the rupee was always going to reverse course as foreign exchange reserves were being depleted. The domestic currency may be supported by better prospects for foreign direct investment, although the timing of these inflows will be important.
Umair Naseer, director of research at Topline Securities, acknowledged that the importance of addressing money laundering and terrorism financing issues has gained traction but did not predict a “major” increase in foreign direct investment and other capital inflows as a result of Pakistan’s removal from the grey list.
In either case, the FATF ruling undoubtedly improves market sentiment, but the nation cannot afford to relax its standards. To help boost economic momentum, it must take advantage of initiatives to tackle money laundering and terrorist financing.
