imf-conditions-to-deter-chinese-investments-in-pakistan

The International Monetary Fund (IMF) has urged Pakistan to halt the creation of industrial zones offering investment incentives, a move that could hinder the country's efforts to attract more Chinese industries, the lender said in a report released on 10 October.

 

Pakistan's government has been asked to refrain from providing tax breaks, subsidies, or other incentives to new or existing special economic zones (SEZs) in order to ensure a level playing field for investment, the Washington-based lender stated.

 

This condition comes as Prime Minister Shehbaz Sharif tries to encourage Chinese companies to relocate industries to Pakistan, boosting projects under China’s Belt and Road Initiative (BRI). Pakistan had planned to develop at least nine SEZs as part of the China-Pakistan Economic Corridor (CPEC), all at varying stages of development.

 

Nathan Porter, IMF’s mission chief for Pakistan, emphasised the importance of offering fair opportunities for businesses without undermining the country’s tax base. He pointed out that previous protection and concessions to low-productivity sectors have hampered Pakistan’s ability to achieve sustainable growth rates compared to regional peers.

 

Immediate impact

 

The IMF's demand is expected to affect a new export processing zone planned for the site of the Pakistan Steel Mills in Karachi, the nation’s commercial hub. After securing a $7 billion loan from the IMF, Pakistan is aiming to attract about 100 major Chinese industries to invest in textile parks in the Sindh and Punjab provinces, set to be built later this year by Ruyi Shandong Group.

 

The Sharif government had been enticing investors with special tax incentives, including exemptions from customs duties on imported goods, to businesses operating in these industrial zones.

 

While China has invested heavily in infrastructure and energy projects under the CPEC, the initiatives have left Pakistan with significant debt burdens. The IMF’s conditions may complicate Islamabad's strategy to revive its economy by expanding Chinese-led industries.