ISLAMABAD: Pakistan can harness its strategic geopolitical potential, improve regional and international economic connectivity and become an economic hub for Asia if the $60 billion China-Pakistan Economic Corridor (CPEC) is successfully implemented, but without structural reforms, the country will not be able to achieve optimal benefits.

This was stated by the Asian Development Bank (ADB) in a new report published on Wednesday. The study “Developing Economic Corridors in Pakistan: Concept, Framework and Case Studiescoincided with Prime Minister Imran Khan’s three-day visit to China with a high-level delegation of cabinet members and government officials.

“If CPEC is successfully implemented, Pakistan can exploit its strategic geopolitical location, improve its regional and international economic connectivity, enhance industrial development and become an economic hub for Central, South and West Asia. “, observed the AfDB.

“However, CPEC alone will not provide optimal results. Structural reforms for private sector development are also needed. In addition, tax reforms are essential to broaden the tax base and improve the perceived fairness of the tax system. The infrastructure built under the CPEC should be fully utilized to expand trade and regional cooperation,” the study observes.

Pakistan should transform its economy through export-led growth, study says

The report attributes weak export performance largely to low productivity and lack of competitiveness, but says an unfavorable trade policy environment also played a key role.

An overvalued exchange rate and escalating tariffs on imported raw materials and intermediate goods could have contributed to lower exports, resulting in a still-large trade deficit, which stood at $32.8 billion during the of the 2019 financial year.

The study indicates that exporters have often faced a cash crunch due to non-payment of sales tax refunds and duty refunds.

The rise in interest rates to 13.25% in 2019 has significantly increased the cost of capital for businesses, which could further dampen investment and exports.

“Through market reforms, Pakistan needs to transform its economy into an export-led growth trajectory. In addition to improving the competitiveness and productivity of the economy with a vibrant private sector, attracting domestic and foreign investment is key to supporting this transformation,” he added.

The Manila-based lending agency advised the government to “accelerate the development of the nine special economic zones (SEZs) planned along the CPEC roads,” as it noted that urban development and economic corridor development ( ECD) were inextricably linked, with urban centers at the center of labour, capital, technology, knowledge, innovation and structural transformation. “Therefore, a successful ECD strategy should aim to harmonize industry development and urbanization,” he said.

“As cities urbanize and industrialize, it will be crucial to address challenges such as infrastructure deficits, overburdened public services and environmental stress. While cities in Pakistan are still vibrant, they are becoming increasingly messy, complex and congested, making it imperative to identify and address constraints to the construction of well-performing urban centers and the integration of public service infrastructure systems,” the study notes.

The government, he said, implicitly treated urbanization and industrialization as separate processes and designated different governance systems to manage them. Furthermore, local government units generally do not consider local economic development as part of their mandate and therefore do not actively promote industrialization.

The AfDB advised the government to develop a targeted evidence-based strategy to provide affordable and reliable public services, including public transport system, water supply and sanitation facilities, solid waste management , education and skills development.

Second, it should ensure access to affordable housing for low-income factory workers and labourers. Third, the roles and responsibilities of federal, provincial and local governments must be streamlined, and vertical governance imbalances in revenue generation must be reduced. In this way, essential public services such as education and health can be fully provided. In addition, adopting a public-private partnership strategy could fill the gap in fiscal space.

Fourth, SEZs should be fully utilized as a spatial economic unit to create synergy between urban and industrial development processes.

Industrial and urban development based on SEZs has become a mode of expansion of urban spaces in several countries.

The study indicated that international experience suggests that economic corridors succeed based on latent economic potential and prospects as the corridor thrives and exploits the inherent economic potential of a region to attract private investment.

The starting point is to select and prioritize a geographic area on the basis of sound, identified and bankable economic and technical analysis, based on existing and future economic potential, to take advantage of economic potential and develop strategies to give prioritizing the most productive way to allocate scarce resources to create business opportunities, infrastructure needs, and policy and regulatory requirements.

In addition to this, political commitment at the highest levels of government and coordination among various government agencies are essential to integrating ECD into a country’s overall economic plan.

“Based on the framework presented in this study, successful planning and implementation of ECD in Pakistan should focus on the three pillars – infrastructure development, urban development and industrial development – ​​and the four key drivers: economic potential, institution and regulation, sustainability and inclusiveness, and external factors as described above,” the study concludes.

Posted in Dawn, February 3, 2022