If India presses Pakistan where it hurts the most, it will just not be able to fight a full-scale war, even if short, with India. And that's what India is planning to do after a massive strike on its air bases and terror infrastructure during Operation Sindoor which made Pakistan beg for a ceasefire.
India will push the Financial Action Task Force (FATF), a Paris-based global financial crime watchdog, to add Pakistan back to its grey list, a top government source has told Reuters. Pakistan's return to the grey list will make it difficult for it to get financial aid from the IMF, the World Bank, the Asian Development Bank (ADB) and the European Union. Pakistan was taken off the FATF grey list in 2022. It secured a $7 billion bailout programme from the IMF last year, and a new $1.4 billion arrangement this month under a climate resilience fund. The IMF said Pakistan had met all of its targets and made progress on reforms, leading the board to approve the programme last year. The Indian government source told Reuters that Pakistan had not met the conditions for being taken off the grey list, and should therefore be returned to it.
Pakistan was first put on the grey list in 2008, and till 2022 it stayed on the list for a considerable period. Pakistan has so far escaped being on the black list, which puts more stringent controls, with the help of close allies like China, Turkey and Malaysia.
India’s successful effort to place Pakistan on the FATF grey list in 2018 was a result of strategic diplomacy, multilateral engagement, intelligence sharing and international cooperation. Will India be able to again achieve that when the Trump administration has gone soft on Pakistan, and China too may resist such an effort?
Read More | No effect of conflict with Pakistan on economy, parameters strong to do well globally: BJP spokesperson
What happens when a country is put on the FATF grey list?
The FATF grey list refers to a group of countries that FATF has identified as having strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. These countries are under increased monitoring but have committed to resolve the identified issues within agreed timeframes.
Being on the grey list is not as severe as the blacklist, which includes countries with significant strategic deficiencies and who are not cooperating or showing commitment to addressing those deficiencies. Countries like Pakistan, the Philippines, and Albania have been placed on the grey list in the past. Many of them experienced economic slowdowns and were forced to make substantial legislative and enforcement changes to be removed from the list.
There are several economic and other consequences for a country when it is put on the FATF grey list. Investors may see the country as high-risk, reducing capital inflows. International banks and financial institutions may impose extra scrutiny on transactions, slowing business. Capital flight and reduced investor confidence can put downward pressure on the local currency. Some international donors and development agencies such as the IMF and World Bank may withhold funding or impose strict conditions.
The grey-listing also brings reputational damage. It sends a negative signal to global markets and multilateral organizations. It can affect the country's ability to borrow internationally at favorable rates. Countries on the grey list face external pressure from FATF and international partners to reform their financial and regulatory systems quickly. It often triggers compliance overhauls and law enforcement reforms.
Read More | Don't equate victim with perpetrator in terror attacks: FS Vikram Misri at Raisina Tokyo
FATF grey-listing cost Pakistan $38 billion
A research paper published in 2021 by Islamabad-based think tank Tabadlab estimated that cash-strapped Pakistan may have resulted in a cumulative GDP loss of $38 billion due to its grey-listing by the FATF from 2008 to 2019.
"A large proportion of this decline in GDP can be attributed to the reduction in household and government consumption expenditures, with real consumption in actual Pakistan $22 billion lower, relative to its counterfactual counterpart," the paper said. It added that the grey-listing has also led to lower levels of both exports and inward FDI. The paper said that FATF sanctioning between 2012 and 2015 cost Pakistan approximately $13.43 billion. It said that even though Pakistan saw itself out of the FATF’s crosshair in June 2015, it took a while for GDP to recover with an estimated loss of $1.54 billion in 2016.
"This implies that FATF sanctioning has short to medium run implications for the economy," it said. The study further pointed out how Pakistan's removal from the grey list even led to the revival of its economy, which was evident from an increase in the level of GDP in 2017 and 2018. It said that the removal from grey list in 2015 may have led to GDP gains in both 2017 and 2018. The paper observed that Pakistan saw its GDP rise marginally at $150 million in 2018, with the re-entry into the grey list wiping off most of the gains from the first half of the year. The declining trend then continued in 2019, with the country losing a staggering $10.31 billion in 2019, the paper showed. "The overall findings suggest that real GDP in Pakistan witnessed a cumulative decline of about $38 billion relative to synthetic Pakistan over 12 years (2008-2019) as a result of FATF’s grey-listing," the paper said.
How India pushed Pak on to the FATF grey list in 2018
India played a significant and strategic role in the process that led to Pakistan being placed on the FATF grey list in 2018. This move was a culmination of diplomatic efforts, intelligence sharing, and leveraging international partnerships to spotlight Pakistan’s inadequate efforts to curb terrorism financing.
India sought to hold Pakistan accountable for harbouring and supporting terrorist groups such as Lashkar-e-Taiba (LeT), Jaish-e-Mohammed (JeM) and Haqqani Network. The US was critical in pushing for Pakistan’s grey-listing. India’s collaboration with the Trump administration then, particularly under the “Indo-Pacific” strategic framework, helped amplify concerns about Pakistan's role in funding terror. India’s evidence and lobbying were supported by France (which later moved the proposal), the UK and Germany (which co-sponsored) and the US, which exerted significant pressure within FATF forums.
Initially, China, Saudi Arabia, and Turkey opposed the move. However, India and its partners engaged in sustained diplomatic lobbying, and eventually Saudi Arabia and China withdrew their opposition, possibly in exchange for future considerations (for example, support for Saudi Arabia’s observer status at FATF). This left Turkey as the sole country opposing the motion, which was not sufficient to block the listing.
(With inputs from TOI and agencies)
India will push the Financial Action Task Force (FATF), a Paris-based global financial crime watchdog, to add Pakistan back to its grey list, a top government source has told Reuters. Pakistan's return to the grey list will make it difficult for it to get financial aid from the IMF, the World Bank, the Asian Development Bank (ADB) and the European Union. Pakistan was taken off the FATF grey list in 2022. It secured a $7 billion bailout programme from the IMF last year, and a new $1.4 billion arrangement this month under a climate resilience fund. The IMF said Pakistan had met all of its targets and made progress on reforms, leading the board to approve the programme last year. The Indian government source told Reuters that Pakistan had not met the conditions for being taken off the grey list, and should therefore be returned to it.
Pakistan was first put on the grey list in 2008, and till 2022 it stayed on the list for a considerable period. Pakistan has so far escaped being on the black list, which puts more stringent controls, with the help of close allies like China, Turkey and Malaysia.
India’s successful effort to place Pakistan on the FATF grey list in 2018 was a result of strategic diplomacy, multilateral engagement, intelligence sharing and international cooperation. Will India be able to again achieve that when the Trump administration has gone soft on Pakistan, and China too may resist such an effort?
Read More | No effect of conflict with Pakistan on economy, parameters strong to do well globally: BJP spokesperson
What happens when a country is put on the FATF grey list?
The FATF grey list refers to a group of countries that FATF has identified as having strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. These countries are under increased monitoring but have committed to resolve the identified issues within agreed timeframes.
Being on the grey list is not as severe as the blacklist, which includes countries with significant strategic deficiencies and who are not cooperating or showing commitment to addressing those deficiencies. Countries like Pakistan, the Philippines, and Albania have been placed on the grey list in the past. Many of them experienced economic slowdowns and were forced to make substantial legislative and enforcement changes to be removed from the list.
There are several economic and other consequences for a country when it is put on the FATF grey list. Investors may see the country as high-risk, reducing capital inflows. International banks and financial institutions may impose extra scrutiny on transactions, slowing business. Capital flight and reduced investor confidence can put downward pressure on the local currency. Some international donors and development agencies such as the IMF and World Bank may withhold funding or impose strict conditions.
The grey-listing also brings reputational damage. It sends a negative signal to global markets and multilateral organizations. It can affect the country's ability to borrow internationally at favorable rates. Countries on the grey list face external pressure from FATF and international partners to reform their financial and regulatory systems quickly. It often triggers compliance overhauls and law enforcement reforms.
Read More | Don't equate victim with perpetrator in terror attacks: FS Vikram Misri at Raisina Tokyo
FATF grey-listing cost Pakistan $38 billion
A research paper published in 2021 by Islamabad-based think tank Tabadlab estimated that cash-strapped Pakistan may have resulted in a cumulative GDP loss of $38 billion due to its grey-listing by the FATF from 2008 to 2019.
"A large proportion of this decline in GDP can be attributed to the reduction in household and government consumption expenditures, with real consumption in actual Pakistan $22 billion lower, relative to its counterfactual counterpart," the paper said. It added that the grey-listing has also led to lower levels of both exports and inward FDI. The paper said that FATF sanctioning between 2012 and 2015 cost Pakistan approximately $13.43 billion. It said that even though Pakistan saw itself out of the FATF’s crosshair in June 2015, it took a while for GDP to recover with an estimated loss of $1.54 billion in 2016.
"This implies that FATF sanctioning has short to medium run implications for the economy," it said. The study further pointed out how Pakistan's removal from the grey list even led to the revival of its economy, which was evident from an increase in the level of GDP in 2017 and 2018. It said that the removal from grey list in 2015 may have led to GDP gains in both 2017 and 2018. The paper observed that Pakistan saw its GDP rise marginally at $150 million in 2018, with the re-entry into the grey list wiping off most of the gains from the first half of the year. The declining trend then continued in 2019, with the country losing a staggering $10.31 billion in 2019, the paper showed. "The overall findings suggest that real GDP in Pakistan witnessed a cumulative decline of about $38 billion relative to synthetic Pakistan over 12 years (2008-2019) as a result of FATF’s grey-listing," the paper said.
How India pushed Pak on to the FATF grey list in 2018
India played a significant and strategic role in the process that led to Pakistan being placed on the FATF grey list in 2018. This move was a culmination of diplomatic efforts, intelligence sharing, and leveraging international partnerships to spotlight Pakistan’s inadequate efforts to curb terrorism financing.
India sought to hold Pakistan accountable for harbouring and supporting terrorist groups such as Lashkar-e-Taiba (LeT), Jaish-e-Mohammed (JeM) and Haqqani Network. The US was critical in pushing for Pakistan’s grey-listing. India’s collaboration with the Trump administration then, particularly under the “Indo-Pacific” strategic framework, helped amplify concerns about Pakistan's role in funding terror. India’s evidence and lobbying were supported by France (which later moved the proposal), the UK and Germany (which co-sponsored) and the US, which exerted significant pressure within FATF forums.
Initially, China, Saudi Arabia, and Turkey opposed the move. However, India and its partners engaged in sustained diplomatic lobbying, and eventually Saudi Arabia and China withdrew their opposition, possibly in exchange for future considerations (for example, support for Saudi Arabia’s observer status at FATF). This left Turkey as the sole country opposing the motion, which was not sufficient to block the listing.
(With inputs from TOI and agencies)
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