India’s Strategic Move: Pushing Pakistan Back on FATF Grey List to Halt Financial Aid
India has intensified its efforts to pressure Pakistan into being re-listed on the Financial Action Task Force (FATF) grey list, a move that could significantly impact Pakistan’s access to international financial assistance. This strategy is part of a broader campaign by India to counter what it views as Pakistan’s support for state-sponsored terrorism, particularly in the context of the ongoing India-Pakistan tensions.
India’s stance is in line with its broader economic and strategic measures aimed at curbing Pakistan’s financial capabilities. Following the removal of Pakistan from the FATF grey list in 2022, which was seen as a significant boost to Pakistan’s standing with financial institutions, India is now seeking to reverse that decision. The Indian government has indicated its intent to submit a comprehensive dossier to the FATF, highlighting specific concerns about entities and individuals linked to terrorism financing and money laundering.
The FATF, an international body responsible for combating financial crime, has a history of placing countries on its grey list when they fail to meet certain anti-money laundering and counter-terrorism financing (AML/CFT) standards. Pakistan was placed on the grey list in 2018 after identifying strategic shortcomings in its compliance with AML/CFT guidelines. The FATF directed Pakistan to implement a series of measures, including targeting terror groups and their associates through legal actions and financial penalties.
Despite Pakistan’s progress in meeting 26 out of 27 action items from its 2018 plan, the FATF noted that the remaining requirement involved proving that high-ranking officials and leaders of UN-designated terror organizations were under investigation. This unresolved issue has led to Pakistan’s continued exclusion from the grey list, a status that India now seeks to restore.
India’s actions are part of a larger effort to limit Pakistan’s access to international financial support, including the World Bank loans. The Indian government has also expressed concerns about the effectiveness of the IMF’s support for Pakistan, citing its history of poor compliance with program conditions. This has led to Pakistan accumulating significant debt, making it a ‘too big to fail debtor’ for the IMF, according to Indian officials.
India’s stance is further reinforced by its opposition to the IMF’s bailout package for Pakistan. India abstained from voting at the IMF’s Executive Board meeting, expressing serious concerns about the financial assistance. India argues that Pakistan’s economic conditions have improved, but it remains wary of the potential use of debt financing for cross-border terrorism.
The Indian government has also highlighted Pakistan’s history of financial borrowing and its failure to meet the terms of its IMF loans. This has led to a significant debt burden for Pakistan, which India views as a potential risk to regional stability. The Indian Prime Minister, Narendra Modi, has reiterated this stance, emphasizing that India’s position is clear: terrorism and trade cannot coexist.
India’s measures are part of a broader economic and strategic strategy to weaken Pakistan’s financial and economic capabilities. This includes the suspension of the Indus Waters Treaty and the imposition of trade restrictions, which have been in place since the Pahalgam terror attack and before Operation Sindoor. These measures are designed to impact Pakistan’s already weakened economy and to limit its ability to fund activities that India deems as a threat to regional security.
India’s push to re-list Pakistan on the FATF grey list is a critical step in its broader strategy to counter what it sees as Pakistan’s support for terrorism. The Indian government has indicated that it will present its findings to the FATF, aiming to secure the reinstatement of Pakistan on the grey list. This move could have significant implications for Pakistan’s access to international financial assistance, potentially limiting its ability to fund economic development and other activities.