Analysts hopeful of removal from FATF's grey-list, but caution long way still to go

Market followers and experts are optimistic that Pakistan would be able to exit the Financial Action Task Force's (FATF) grey-list as anticipation increases ahead of the Paris-based global watchdog's plenary meeting.

Outcomes are expected to be announced at a press conference on Friday (October 21) at 8pm Pakistan time, according to information provided by the FATF media team.

Amid high hope, Pakistan looks to get off FATF’s ‘grey list’

While Pakistan's government remains confident that Pakistan would be removed from the grey-list, where it was placed four years ago, analysts too, expect a similar outcome.

“The government makes such statements ever so often, however, this is the first time that the market is expecting an exit from the grey-list,” Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited, told Business Recorder.

“The problem earlier was that FATF's action plan was not completed. However, this time, a lot of things have already been cleared — Pakistan is more compliant in regulations in comparison to many developed countries as well.

Dar optimistic of Pakistan’s exit from FATF’s grey-list

“Consequently, it is highly probable that Pakistan will exit the grey-list.”

Rauf said apart from making significant gains in compliance, Pakistan’s relations with the United States have also improved, which would play to the country’s advantage.

“Our relations with the US have improved, despite [US President] Joe Biden's recent statement, which is a concern,” he added.

Rauf said being on the grey-list “creates a very negative perception among the investment community”, which negatively influences a country’s ability to attract foreign inflows.

Khar in Paris to attend crucial FATF meeting

“Getting out of the grey-list would help in attracting investment. However, this cannot be quantified as global environment does not offer much support at the moment.

“Thus, no monetary benefits are expected in the near term, but the improvement in perception would be helpful for Pakistan in the long run,” he said.

Wajid Rizvi, Head of Research at Intermarket Securities, echoed similar views.

“The development will increase confidence, especially for the country’s banking sector,” Rizvi told Business Recorder. “It would also boost the level of business confidence, especially among international investors, bringing Pakistan back into the limelight,” he added.

Rizvi opined that Pakistan never really attracted much Foreign Direct Investment (FDI) even prior to its entry into the FATF grey-list, as this has more to do with government policies and the overall economic situation of a country.

“Thus, in the short-term, removal from the grey-list would change the sentiment, but would not attract much monetary benefit. The FATF white list does not guarantee instant foreign inflows, but it does offer long-term flows added with some market reforms,” he said.

Najam Ali, CEO of Next Capital Limited, said Pakistan needs to work on structural reforms to attract investment.

“While removal from FATF will help, Pakistan’s other major problems in attracting FDI are inconsistent policies, high corporate taxes, unstable rupee, perpetual political instability and above all, utter disregard for commercial contracts,” Ali said in a tweet post on Thursday.

Pakistan’s FDI inflows plunged by 47% during the first quarter of this fiscal year. The State Bank of Pakistan (SBP) on Wednesday reported that Pakistan fetched FDI amounted to $253.4 million during July-Sep of FY23 as against $479.2 million in the same period of last fiscal year (FY22).

Moreover, international political experts also believe that Pakistan, which was placed on FATF's grey-list for deficiencies in its counter-terror financing and anti-money laundering regimes in June 2018, would be “formally removed” from the grey-list.

“Barring a surprise, Pakistan will likely be formally removed from the FATF grey-list later this week, after FATF's October plenary concludes on Friday,” tweeted Michael Kugelman, the Deputy Director of the Asia Program and Senior Associate for South Asia at the Wilson Center, who is a leading specialist on Afghanistan, India, and Pakistan and their relations with the United States.

“This would be a big reputational boost for Pakistan and it would ease some investor concerns at a very difficult economic moment,” he added.

Earlier, in its meeting in June 2022, FATF acknowledged that Pakistan made "significant progress" in strengthening its Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regime. The watchdog said that it would conduct an on-site visit to the country at the earliest possible date.

Subsequently, a technical team of FATF, comprising counterterrorism experts, concluded its on-site visit to Pakistan last month.

The 15-member delegation visited Pakistan from August 29 to September 5 and held meetings with the country’s leadership, besides getting a briefing from relevant authorities on Pakistan’s implemented reforms.