ISLAMABAD: Identifying short-term external liabilities as a significant challenge, Pakistan Business Council (PBC) on Wednesday called for a measured watch on increasing 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 also attended by Prime Minister Shahid Khaqan Abbasi, the influential group representing 66 of the largest industrial groups of the country said 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.

“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 strongly demanded 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 the 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.

FTA with China ‘damaged’ industry, investments under SEZs could compound the problem: Pakistan Business Council

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, and of, their own.

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 counterparty 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.

Centralisation 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.

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 general election is approaching, he said, some of the decisions will have to be fast-tracked.

Syed Shabbar Zaidi, Partner AF Ferguson and Company, criticised 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 corporatisation and therefore incentives should be provided to corporatise the business instead of family owned small firms to move the economy up the value chain,” he added.

Published in Dawn, January 18th, 2018