Does Pakistan’s credit score matter?

Published: December 5, 2018
The writer has a business administration and marketing background and is an upcoming private entrepreneur in Islamabad. He can be reached at

The writer has a business administration and marketing background and is an upcoming private entrepreneur in Islamabad. He can be reached at

The US initiated and led the global anti-terror war since the 9/11 attacks. It has by implication also pushed many new concepts relating to terrorism, extremism and driven national policies all over the world. Concepts such as terror financing and money-laundering too are the by-product of the focus on terrorism. This way the US has put itself at the heart of the global anti-money laundering network in a manner that other countries too began accepting the US preferences as their own. The international Financial Action Task Force (FATF) is one such forum. Governments are now using FATF’s tools to counter terror financing, fight organised crime and illegal exchange and procurement of weapons across borders. Hence, the FATF has evolved rapidly from being a fringe institution to a governing body in an area that has gained global currency in the last two decades or so.

Pakistan was added to the ‘grey list’ of countries in June 2018 for failing 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 ill-gotten money changes hands, and exits the country via the formal banking 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.

Published in The Express Tribune, December 5th, 2018.

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