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Pakistan eyes enhanced FDI after EU’s easing of financial curbs

  • April 25, 2023

ISLAMABAD-Businesses and individuals in Pakistan would no longer be subjected to Enhanced Customer Due Diligence (ECDD) by the European economic and legal institutions after the European Union’s move to remove the country from its list of high-risk third countries.

This move will increase exports from Pakistan to European countries and help the country earn high foreign earnings in the long run, says a financial expert. Further, it will also bring foreign direct investment (FDI) to the country owing to the improvement of the national image in the eyes of foreign investors. Tahir Abbas, Head of Research at Arif Habib Limited, a leading securities brokerage and investment banking firm, said that Pakistan’s inclusion in this list in 2018 brought a lot of challenges and complications for the foreign investors and exporters of Pakistan.

He said the removal of Pakistan from this list now will encourage the investors as they will face fewer obstacles in exporting goods because extra checks and balances on the exports and international transactions of Pakistan’s exporters will be removed. The EU imports from Pakistan were $9.94 billion in 2022, according to the United Nations COMTRADE database on international trade. Pakistan’s exports to the EU were recorded at $7.340 billion during the first eight months (July-February) of the current fiscal year (2022-23) against $7.044 billion during the corresponding period of the last fiscal year (2021-22).

Exports to European countries registered a positive growth during the first eight months of FY23 despite a decline of 9.21% in the country’s overall exports. The GSP+ status, which plays a vital role in increasing Pakistan’s exports to the EU, will expire in December 2023. However, this recent development will outplay the expiration of GPS+ status because of its long-term positive impacts on the economy of Pakistan. Pakistan was first added to the list of high-risk third countries in October 2018 due to perceived weaknesses in its anti-money laundering/counter-terrorism financing (AML/CFT) laws.

The EU high-risk third countries list includes countries that are considered to have strategic deficiencies when it comes to anti-money laundering and counter-terrorism financing regulations. The decision has been taken in line with last year’s FATF (Financial Action Task Force) decision to remove Pakistan from its grey list.

In light of this development, “obligated entities” are no longer required to conduct the ECDD when transacting with individuals and legal entities in Pakistan. A number of entities are included in this category, including credit institutions, financial institutions, auditors, external accountants, tax advisers, notaries, legal professionals (acting on behalf of and for their clients in any financial or real estate transactions), estate agents, and individuals trading in products. In a statement issued by the Foreign Ministry, Pakistan’s exclusion from the list would enhance comfort levels for European economic operators and will likely reduce legal and financial transaction costs and time for Pakistani entities and individuals.

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