News Analysis |
Shedding light on the immediate external liabilities as a significant challenge, Pakistan Business Council (PBC) this week called for a measured recon on increasing the Chinese footprint in Pakistan’s economy and a calculated response with fiscal, monetary and exchange rate adjustments to manage the balance of payments.
At the Pakistan Economic Forum, which was also attended by Prime Minister Shahid Khaqan Abbasi, the influential group representing 66 of the largest industrial groups of the country said that the massive China-Pakistan Economic Corridor (CPEC) offered opportunities for the economy to benefit from improved infrastructure and high job creation but wanted a cautious approach to monitor future openings.
The former SBP governor also said that small and medium-sized enterprises (SMEs) are not getting their due share in bank lending. Meanwhile, the share of SMEs in private sector lending has now reduced to just 6-7% from 17% in 2005-06.
“Chinese investment must be seen to serve as an enhancer to domestic businesses, not as an ‘extractor’ from them,” the PBC said in its final report made public at the event. The council demanded that the release of the detailed CPEC long-term plan to the business community, followed by the creation of a formal body to hold discussions among Planning Commission, representatives of the country’s business and financial sectors and relevant regulatory authorities, State Bank of Pakistan and Securities and Exchange Commission of Pakistan.
There were a lot of queries, concerns and different misapprehensions surrounding the CPEC at present on part of both domestic and multilateral agents, which must be addressed, the report said. “Already damaged by the free trade agreement (FTA) with China, many businesses in Pakistan are concerned that Chinese companies will use the CPEC ‘umbrella’ to further increase their share of the domestic market, through the proposed special economic zones (SEZs), or through the incorporation of Xinjiang within CPEC,” the report said.
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Speaking of the Chinese enterprises coming to Pakistan, the report said that “so far, their work here has involved less use of Pakistani manpower and resources than expected,” noting that except for power projects, no large Pakistani business houses were known to have partnered with Chinese companies in manufacturing or other enterprise, and Chinese companies were, anecdotally, active in seeking investments within Pakistan largely on their own.
He, however, said that this requires consistent collaborative efforts from the government and the private sector, which also include monthly meetings between the prime minister and exporters.
The council also suggested that responsibility for approval and monitoring of all CPEC projects be consolidated under the aegis of an empowered and fully staffed authority as its sole responsibility.
CPEC operates through different levels, and departments, of the government, and separately, the private sector. If each competitor is left to negotiate terms, oversee implementation, and respond to problems, Pakistan can end up with different responses to similar issues, and also different procedures, rates and prices, compromising our control and influence on the whole process as it rolls forward.
Centralization will allow the development of common criteria, build project supervision experience and expertise at a single point, and allow smoother and faster project implementation, the PBC advised.
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PBC Chairman Muhammad Ali Tabba said while short-term measures required to manage the immediate challenges, macroeconomic stability could only be sustained through fundamental reforms that required political will. With the general election approaching, he said, some of the decisions will have to be fast-tracked.
Speaking on ‘sustainable macro-economic growth’, Hussain said that Pakistan has grown by over 6.5% for over 40 years from 1950 to 1990 ahead of China and India, and it can still achieve this growth rate.
Syed Shabbar Zaidi, Partner AF Ferguson and Company, criticized growing reliance of the fiscal policy on collecting revenues from imports through duties, presumptive and sales tax on a full and final basis and manufacturing sector being 13.5 per cent of GDP subjected to 58 per cent of tax load. “The tax regime discourages corporatization and therefore incentives should be provided to corporatize the business instead of family owned small firms to move the economy up the value chain,” he added.
Also addressing the 4th Pakistan Economic forum, the former Governor State Bank Dr. Ishrat Hussain said that Pakistan needs to utilise the China-Pakistan Economic Corridor (CPEC) for its growth strategy otherwise it may miss this opportunity.
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China and Pakistan are jointly undertaking a multibillion-dollar project that features investments in infrastructure, highway network and power plants. While there is skepticism over Pakistan’s ability to repay Chinese loans taken to complete the corridor, Husain said collaborative efforts can help Islamabad register the economic growth the country witnessed in the 1960s.
Centralization will allow the development of common criteria, build project supervision experience and expertise at a single point, and allow smoother and faster project implementation, the PBC advised.
“We need a growth strategy based on industrialisation plans, including joint ventures with Chinese companies to create jobs in the country,” said Hussain
Speaking on ‘sustainable macro-economic growth’, Hussain said that Pakistan has grown by over 6.5% for over 40 years from 1950 to 1990 ahead of China and India, and it can still achieve this growth rate. He, however, said that this requires consistent collaborative efforts from the government and the private sector, which also include monthly meetings between the prime minister and exporters.
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The former SBP governor also said that small and medium-sized enterprises (SMEs) are not getting their due share in bank lending. Meanwhile, the share of SMEs in private sector lending has now reduced to just 6-7% from 17% in 2005-06.