current account deficit Current Affairs - 2019
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The Financial Action Task Force (FATF) condemning the Pulwama Terror Attack has decided to continue the ‘Grey’ listing of Pakistan for its failure to stop funding of terrorist groups such as Jaish-e-Mohammad, Lashkar-e-Taiba and Jamat-ud-Dawa.
Why FATF has decided to continue Pakistan in Grey List?
- The statement issued by FATF states that Pakistan should continue to work on implementing its action plan to address its strategic deficiencies, including by adequately demonstrating its proper understanding of the terror financing risks posed by the terrorist groups and conducting supervision on a risk-sensitive basis.
- FATF notes that even though Pakistan has revised its terror financing risk assessment, it does not reflect proper understanding of the TF risks posed by Da’esh (ISIS), AL-Qaida, JuD (Jamat-ud-Dawa), FIF (Falah-e-Insaniat Foundation), LeT (Lashkar-e-Taiba), JeM (Jaish-e-Mohammad), HQN (Haqqani Network) and persons affiliated with the Taliban.
- Noting the limited progress on action plan items due in January 2019, FATF urged Pakistan to swiftly complete its action plan, particularly those with timelines of May 2019.
How the Grey Listing would impact Pakistan?
- Grey list will endanger Pakistan’s handful of remaining banking links to the outside world. This would cause real financial pain to the fragile economy of Pakistan.
- Grey listing will squeeze Pakistan’s economy and make it harder to meet its mounting foreign financing needs, including potential future borrowings from the International Monetary Fund (IMF).
- Grey listing would also lead to the downgrading of Pakistan’s debt ratings by international banking and credit rating agencies, making it more difficult to tap funds from international bond markets.
- It will also suspend international funds and aid to Pakistan such as Coalition Support Funds (CSF), money which the US owes to Pakistan for military operations.
Grey Listing will also lessen investors confidence in Pakistan and impacts its imports and exports, widening its existing huge current account deficit (CAD).
Tags: current account deficit • FATF • Financial Action Task Force • Grey List • International Monetary Fund • Jaish-e-Mohammad • Jamat-ud-Dawa. • Lashkar-e-Taiba • Pakistan • Pulwama terrorist attack • terror financing risk assessment
The World Bank has released the Global Economic Prospects report 2019 titled “Darkening Skies”. The key findings of the report related to India are:
- India’s GDP is expected to grow at 7.3 per cent in the fiscal year 2018-19, and 7.5 per cent in the following two years. The growth rates are attributed to an upswing in consumption and investment.
- India would continue to be the fastest growing major economy in the world. The report estimates China’s growth to slow down to 6.2 per cent each in 2019 and 2020 and 6 per cent in 2021.
- China had an estimated growth rate of 6.5 per cent as against India’s 7.3 per cent in 2018.
- China’s growth rate at 6.9 per cent growth was marginally ahead of India’s 6.7 per cent in 2017 because of the slowdown witnessed in the Indian economy due to demonetisation and implementation of the Goods and Services Tax (GST).
- World Bank notes that domestic demand has strengthened as the benefits of structural reforms such as the GST harmonisation and bank recapitalisation take effect.
- Strong domestic demand may further widen the current account deficit to 2.6 per cent of GDP in 2020. Inflation is projected to be above the midpoint of the Reserve Bank of India’s target range of 2 to 6 per cent, mainly owing to energy and food prices.
- The introduction of the GST and demonetisation has encouraged a shift from the informal to the formal sector.
- Public sector banks in India, which represent roughly 70% of the banking sector assets, still report low profitability and high non-performing assets.
The report notes that growth performance of India as compared to other emerging markets has been quite impressive.