ADB proposes measures to maximise CPEC benefits
Third meeting of the Pak-China Relations Steering Committee reviewed the status of CPEC projects and found that a majority of its directives given in the first week of August had remained unimplemented. PHOTO: FILE
The Asian Development Bank (ADB) has proposed certain policy actions to fully explore the potential benefits of China-Pakistan Economic Corridor (CPEC) and raise income from exports and enhance fiscal capacity of the government.
A case study on Economic Corridor Development (ECD) in Pakistan released by the ADB on Wednesday proposed to utilise the transport infrastructure built under the CPEC more effectively and efficiently to maximise investment return by converting it into a multilateral initiative.
For instance, the study noted that economic connectivity and integration with the landlocked Central Asian countries could provide the Central Asia Regional Economic Cooperation (Carec) participating states with efficient and effective access to global markets through the strategically located Gwadar port.
This could help Pakistan maximise its strategic location and become the economic hub in Central, West, and South Asia. In this context, links with the Carec countries could be strengthened, particularly on trade-related issues, such as standards, sanitary and phytosanitary measures, customs procedures, rules of origin, e-commerce, and intellectual property rights.
Consequently, Pakistan could increase toll and tax revenues while developing mutually beneficial economic partnerships for boosting export income.
The primary objective of ECD is to enhance the competitiveness and productivity of economies to promote a higher, more sustainable, and inclusive development process.
Once ECD is successfully installed, it becomes a sound industrial and diversified regional base by attracting investments into sectors such as manufacturing for both domestic and export markets. Through the process, countries with successful ECD become competitive and productive, which results in poverty alleviation through job creation.
Meanwhile, the study also called for expediting the development of nine special economic zones (SEZs) planned along the CPEC routes.
Given their high-risk and high-return nature, SEZs should be developed based on global best practices and local knowledge with an aim to attract China’s export-oriented sunset industries.
China’s wage rise and the policy shift from low-end manufacturing to technologically advanced manufacturing have made the production of export-oriented goods and services unfeasible in the country.
The Chinese government, therefore, is expected to relocate these industries to other developing countries. Pakistan could be well-positioned to negotiate for the relocation of such industries on mutually beneficial terms.
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The recent consultation between Pakistan and China on the framework agreement for industrial cooperation through business joint ventures and SEZs development is a welcome sign and could promote Pakistan’s industrial activities.
Moreover, the Pakistan government had notified in December 2020 a high-level Special Technology Zone Authority with its board of governors headed by the premier.
The initiative would help foster the development of technology zones and high-tech industrial parks to help revive and diversify Pakistan’s re-manufacturing and exports.
The study also suggested undertaking structural reforms to unleash the potential for private sector development which would enhance Pakistan’s competitiveness, productivity, and access to the global market.
They could be critical to reducing the large trade deficit and boosting the foreign exchange reserves. Possible reforms could include rationalising business regulations and taxation; improving trade facilitation and logistics; augmenting human capital development and labour market efficiency; and strengthening financial inclusion along with deepening the capital market.
In addition, the study also called for broadening the tax base to unlock the country’s tax revenue potential while improving the perceived fairness of the tax system.
The International Monetary Fund estimate suggests that Pakistan’s tax capacity is about 22.3% of GDP, implying a tax revenue shortfall of more than 10% of GDP in FY 2019.
In 2014, the Government of Pakistan had launched the CPEC project. The CPEC’s planned investments amount to about $62 billion by 2030. If CPEC is successfully implemented, Pakistan can harness 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, the study noted.
The study added that the ECD can bring about certain perceived benefits including improved national and regional connectivity resulting from faster, cheaper, and easier movement of people and goods within and across borders; reduced cost of national, regional, and global trade, and reduced poverty as a result of improving poor people’s access to economic opportunities, lowering the cost of goods and services they consume, and providing better access to essential infrastructure services such as electricity.