Does Pak­istan’s credit score mat­ter?

The Financial Daily - - NATIONAL -

to curb anti-ter­ror fi­nanc­ing de­spite Is­lam­abad sub­mit­ting a 26- point ac­tion plan and launch­ing a con­certed diplo­matic ef­fort to avert the de­ci­sion. How does this af­fect us?

The black and grey lists raise dif­fi­cult ques­tions for mem­bers. Mar­ket ac­tors such as the IMF, the IFC or other pri­vate lend­ing in­sti­tu­tions, for ex­am­ple, are fore­warned when states or en­ti­ties un­der their ju­ris­dic­tions are non-com­pli­ant or put on one of th­ese lists. Any trans­ac­tions car­ried out with th­ese states go through thor­ough scru­tiny. This ad­di­tional level of se­cu­rity makes it dif­fi­cult for states to either di­vest cur­rently held as­sets or alert them to avoid trans­ac­tions in th­ese tar­geted coun­tries. There's fear of loss of rep­u­ta­tion, down­grad­ing of debt rat­ings, credit wor­thi­ness and a loss of im­age.

The FATF's de­ci­sion to place the coun­try on its grey list un­til an­other re­view in Oc­to­ber re­lates largely to loop­holes in the coun­try's bank­ing sys­tem that it be­lieves fa­cil­i­tates ter­ror fi­nanc­ing. How­ever, the FATF frame­work also ap­plies to the gaps in bank­ing chan­nels that can be eas­ily ex­ploited for laun­der­ing il­licit funds. Pre­ced­ing the grey-listing was the FATF de­ci­sion in Fe­bru­ary at Paris to put the coun­try un­der watch un­til June.

As far as the coun­try's cost of do­ing busi­ness or neg­a­tive im­pact for the economy in gen­eral fol­low­ing its grey- listing, the fac­tual ev­i­dence, both his­toric and cur­rent, sug­gests that th­ese as­ser­tions are sim­ply in­cor­rect. Pak­istan was on the FATF grey list from 2012 to 2015, a pe­riod dur­ing which it suc­cess­fully pro­cured an IMF pro­gramme and raised over $5 bil­lion from the in­ter­na­tional bond mar­kets. Dur­ing this pe­riod, Pak­istan's im­ports and ex­ports re­mained sta­ble, ev­i­dence that the grey-listing did not raise any sig­nif­i­cant bar­ri­ers to trade.

This does not mean, how­ever, that sys­tems and pro­ce­dures within our bank­ing sys­tem do not need to be ad­dressed. The mega money-laun­der­ing scam in­volv­ing three Pak­istani banks per­haps can pro­vide in­sights at least on one count ie how much ill­got­ten money changes hands, and ex­its the coun­try via the for­mal bank- ing chan­nel. In­ves­ti­gat­ing of­fi­cials al­lege that the three banks' laun­dered funds - mostly re­lated to po­lit­i­cal lead­ers from the Sindh prov­ince - worth bil­lions of ru­pees. And if pros­e­cu­tors could prove it, it would vin­di­cate Pak­istan at least on one count. But ter­ror fi­nanc­ing would re­main a big stick­ing point and might take a while and con­sid­er­able ef­fort for Pak­istan to sat­isfy the US-dom­i­nated FATF.

Al­though many Pak­ista­nis view the grey-listing by the FATF as po­lit­i­cally mo­ti­vated, the la­cu­nas in Pak­istan's bank­ing laws still beg at­ten­tion and cor­rec­tion. We must have a healthy credit rat­ing in the in­ter­na­tional money mar­kets. This is some­thing that needs ur­gent at­ten­tion as far as pro­ce­dures for bank­ing trans­ac­tions are con­cerned. If Pak­istan can meet the FATF stan­dards at least on the pro­ce­dural front that too could pro­vide a big breather to it and en­cour­age deal­ing with the core is­sue ie non-state ac­tors and their in­for­mal so­cial sup­port net­works.

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