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Short term risks, long term benefits

Short term risks, long term benefits

A recent warning of the World Bank that Pakistan should try to develop consensus among all the stakeholders on China-Pakistan Economic Corridor needs to be listened carefully. In its report, ‘Fading Tailwinds’, the bank says that economic corridor could be a game changer for Pakistan, but is facing risks of political economy coupled with limitations of China to ensure financial inflows into the project on regular basis. The twice-a-year report sees the lack of consensus within the political divide as one of the major risks for full utilization of potentials of the $46-billion corridor as well as the economy. According to the bank, the corridor and energy projects, once completed,will not only stimulate large scale manufacturing but also construction industry. The bank believes that the demand-driven economic expansion could have limited scope in the short-run due to significant increase in imports. However, falling fuel prices in the international market, a better energy supply and improved law and order have pushed the economic growth in Pakistan during the current fiscal year.

The World Banks and other donor agencies have projected the economic growth in the country from 4.5 percent in 2016 to 4.8 percent in 2017, bolstered by low oil prices, substantial increase in remittances form expatriate Pakistanis, increase in the foreign investment and better performance of the industrial as well as services sectors. However, the bank calls for introduction of reforms to improve business climate, ensure better access to finance and develop trade regime. Despite the fact that elections are expected in two years, it will be very difficult for the government to implement unpopular decisions in the fields of taxation and energy. The bank calls South Asia as the fast-growing region in the world which is mostly unaffected by the turbulence in the international markets. However, it also points out economic vulnerability of the country as exports have declined due to global economic crisis as well as limitations of its exports to a few destinations. On financial front, the report says that current account deficit will increase to 1.3 percent in two years while increase in import bill will weaken the trade account during the period. However, there is improvement in the tax collection due to fiscal reforms.

As a matter of fact, the government is still far from introducing structural reforms in tax collection system and has yet to take steps to rationalizethe tax rates. The government is under pressure from all sides to withdraw exemptions which are necessary and should have to be continued to some extent. The economic corridor is a lifeline of the country and Pakistan will have to resist pressure from certain quarters at home and foil international conspiracies against the project with Chinese help.