AKD Securities Limited – AKD Daily (October 24, 2022)

Karachi, October 24, 2022 (PPI-OT): Pakistan Strategy: Pakistan finally crawls off the grey list!

The FATF Asia Pacific Group (APG) finally took Pakistan out of the “increased monitoring” or “grey list” at the plenary held on Friday in Paris. The development comes after more than four years of the country languishing in the grey list.

The implications of the FATF grey list on Pakistan included the reputational loss that the country incurred, which was also capitalized on by rival states. Furthermore, the grey list substantially affected FDI flows for Pakistan, with FDI falling from US$2,782mn in FY18 to US$1,362mn the very next year (i.e. FY19).

To recall, Pakistan was placed in the grey list in Feb’12 for a period of 3 years. Drawing a comparison with the last time, Pakistan received a total of US$4,197mn in FDI during the three-year period, which rocketed to US$7,062mn in the three years after Pakistan was taken off the grey list. In the event that history repeats itself, greater FDI in the country could lend a helping hand to Pakistan’s external front.

The whitelisting comes at a time when the external financing needs of the country are estimated to top US$32bn mark with SBP claiming commitments of ~US$37bn already in the bag. We opine that Pakistan will be able to negotiate better terms from funding sources following the white-listing.

Pakistan getting off the grey list will likely be celebrated by the capital markets and provide the equity market with a much-needed trigger. Furthermore, the market would be closely monitoring any improvements on the external front following the FATF decision, which could strengthen the sentiment in the market. The market currently trades at a forward PER of 4.2x