Exit from FATF to open country for investment

The Pakistani markets finally received the much-awaited good news. As per the reports, the meetings that took place in Berlin from June 14 to 17, resulted in a unanimous decision in favour of Pakistan that declared it compliant on all the 34 action points required by the Financial Action Task Force (FATF).

The delegation represented 206 FATF members and observers that included the likes of the International Monetary Fund (IMF), United Nations and the World Bank.

While it took Pakistan four years to reach to this point since it was put in the “grey list” in 2018, the country may still remain in the list for another couple of months, as the next course of action is an on-site visit by the FATF’s technical evaluation team to ensure the adoption, implementation and enforcement of internationally accepted anti-money laundering and counter-terrorist financing standards.

Before 2018, Pakistan has been placed in the “grey list” in 2008 and in 2012, where the country took two to three years in each episode to comply with the standard that would lead to an exit from the list.

A successful on-site visit would result in Pakistan being moved back to the “white list”, which would mean Pakistan would not be among the countries that require increased monitoring over concerns on potential money laundering and terrorism financing.

The exit is a symbolic positive, as it would consequently open the country for bilateral and multilateral trade and investments to the world with more confidence from the foreign investors.

The next set of meetings by the FATF is scheduled in October 2022, where any changes announced in the same would reportedly implement from February 2023.

We expect the equity market to respond positively to this development, while the next obstacle likely in the way of the investors’ confidence revival is the IMF’s announcement of the staff-level agreement. The delay in bringing the IMF programme back on track has been taking a toll on the equity and forex markets, with multiples lingering at sub 5x levels since more than a couple of quarters now, with the rupee hitting the all-time low every passing day (-11 per cent this quarter alone).

The event-based themes in the exploration and production (E&P) and the oil and marketing company (OMC) sectors, related to the resolution of the circular debt, should also be kept on radar.