What happened?
On 23 October, the Financial Action Task Force (FATF) announced that Pakistan would remain on the increased monitoring list, the so-called grey list for another four months. The Global watchdog stated, "to date, Pakistan has made progress across all action plan items and has now largely addressed 21 of the 27 action items. As all action plan deadlines have expired, the FATF strongly urges Pakistan to swiftly complete its full action plan by February 2021." Adding, "the FATF takes note of the significant progress made on several action plan items." Further, FATF president, Dr Marcus Pleyer, president of the FATF while appreciating the efforts made by the country said, "It needs to do more" adding, "Pakistan needs to complete six outstanding items" which are all very serious and that risks are not over until the government of Pakistan repairs all six outstanding items.
Pakistan welcomed the decision calling it is indicative of the "confidence of the FATF" on the efforts of taken by the government of Pakistan. The decision comes after the three-day virtual plenary FATF session, which started on 21 October. The next plenary is due on 21-26 February.

What is the background?
First, Pakistan has been under pressure since June 2018, following an unsatisfactory evaluation of its compliance with FATF's parameters. Since then, Pakistan made efforts to work with the FATF and the Asia Pacific Group (APG) to strengthen its Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regime. 

Second, complying with the full FATF action plan has been challenging. Pakistan was to comply with a 27-point action plan as per the interim deadlines in January and May 2019, and a final deadline in October.  In June, Islamabad got an unexpected breather after the global watchdog temporarily postponed all mutual evaluations and follow-up deadlines due to the pandemic. In October 2020, the APG submitted a Mutual Evaluation report on Pakistan to the FATF, along with its own assessment of Islamabad's efforts, in which it stated that the efforts were inadequate. However, Pakistan believes that it had developed monitoring and enforcement mechanisms. Following the latest meeting, the FATF has strongly urged Pakistan to complete its full action plan. The October 2019 deadline was then extended to February 2020. Pakistan once again received a four-month grace period to complete its 27-point action plan. 

Third, Pakistan's efforts thus far have been substantial but not enough. Pakistan's political commitment has led to progress in several areas in its action plan, including taking action to identify and sanction illegal Money or Value Transfer Services, implementing cross-border currency and bearer negotiable instruments controls, improving international cooperation in terrorist financing cases, passing amendments to the Anti-Terrorism Act to increase the sanctioning authority, financial institutions implementing targeted financial sanctions and applying sanctions for AML/CFT violations, and controlling facilities and services owned or controlled by designated persons and entities. 

Fourth, several crucial strategic deficiencies remain to be addressed. This includes the following:
to demonstrate that law enforcement agencies (LEAs) are identifying and investigating the widest range of TF (terrorist financing) activity;
to address TF prosecutions result with effective and proportionate sanctions;
to effectively implement financial sanctions against all designated terrorists;
and to look into enforcement against targeted financial sanctions (TFS) violations. 

What does it mean?
Exiting the FATF's 'grey list' has been the top priority for the Pakistan government. Continuation on the 'grey list' has made it increasingly difficult for the country to get financial aid from the International Monetary Fund (IMF), World Bank, Asian Development Bank (ADB) and the European institutions. Given the dire economic situation and the current economic climate of the pandemic, Pakistan is keen to attract investments, and also desperately requires these funds.
Further, the PTI government has taken efforts with a series of FATF specific legislations. It appears, more efforts will have to be taken to complete the remaining items in line with its strategy by February 2021 and also establish mechanisms to maintain these commitments.