Pakistan: ADB Report on Economic Corridor Developmentand Future Prospects

According to the latest Feb 2022 Asian Development Bank (ADB) Report titled ‘Economic
Corridor Development in Pakistan,’ despite its immense potential, Pakistan has not yet been able to
attain a sustained growth path to move beyond its historic lackluster and stop-and-go pattern,
characterized by ‘booms and busts’ every 3 to 4 years. This growth cycle stems from nascent private
sector development, which is evident from the fact that the services sector’s share, mostly nontradable, dominates Gross Domestic Product (GDP). The manufacturing sector share has been
approximately 13% of GDP compared with a 30% average for comparable economies. It was noted that Pakistan has great opportunity and a unique potential to become the regional
hub of economic activity due to its strategic geopolitical location at the crossroads of South Asia and
Central Asia. The country had already begun applying its potential by adopting and implementing an
Economic Corridor Development (ECD) strategy as part of its core development and growth
framework. The ECD aims to achieve spatial transformation, urban development, and agglomeration.
A well-planned and implemented ECD strategy can promote rapid industrialization by removing
infrastructure bottlenecks, improving access to markets, and stimulating trade and investment. ECD
will help businesses realize economies of scale, network externalities, and agglomeration benefits.
However, ECD implementation requires a complex and cross-sectoral development strategy and
although it was a necessary condition, it was not sufficient for transforming the economy to exportled growth – private sector development. As ECD entails extensive coordination and collaboration among various government bodies,
the importance of a sound institutional and policy framework was also underscored. The report
recommended that an institutional framework that coordinates the planning, prioritizing, and
developing of corridor infrastructure projects among government agencies should be established to
ensure optimum allocation and mobilization of available resources. It was also suggested that to ensure
that ECD benefits are long-lasting and far reaching, plans to expand ECD must pay close attention to
inclusive growth, gender equality, sustainability, climate change resilience, and environmental
preservation. On its part, the Prime Minister Imran Khan (PMIK) government in Islamabad has pinned its
hope on China-Pakistan Economic Corridor (CPEC) to accelerate is economic growth despite the fact
that the Early Harvest Projects of CPEC on energy and infrastructure so far could not yield any tangible
results, neither economic prosperity nor social upliftment. Keeping in view of this reality, PMIK
signed a ‘Framework Agreement on Industrial Cooperation” with China marking the beginning of the
2nd phase of cooperation under CPEC during his recent visit to Beijing. Meanwhile, identifying bottlenecks for development, the ADB report describes Pak economy
as characterized by low level of exports, contributing merely 8.6% of GDP in FY 2021, which is
around fourfold lower than the emerging markets’ share. The composition is also limited to textiles
and food. Share of manufacturing sector to GDP is only 13% in Pakistan while it is 30% for
comparable economies. The document highlighted that Islamabad was confronting low productivity, lack of
competitiveness, absence of conducive trade policy environment, besides harmonized customs
procedures and transit rules in promoting exports. Besides this, the country was also facing the
shrinking share of manufacturing in GDP and poor quality & quantity of roads, railways, ports and
energy. According to the ADB, these were the main reasons for the declining Pak share in global
trade. While analyzing reasons for poor FDI in the country, the report observed that Islamabad faces
many hurdles, including macroeconomic and political stability, inadequate ease of doing business,
undeveloped domestic financial system, poor law & order, non-availability of low-cost energy, skilled
workforce, etc., which inhibit the country from recording high growth rate. The ADB summarized that Pakistan’s shallow and underdeveloped financial markets as well
as rising government borrowing to meet budget deficits pushes up the capital costs for private sector
and the financial sector thus lags behind with other South Asian countries. The ADB document pointed out that even overseas investors noted that technical and vocational
skills sector in Pakistan have not been exploited to their full potential. Further, the current technical &
vocational education / training system was not aligned with industry needs. The manufacturing sector
experiences shortage of technical skills, especially in the area of new technologies. The study underscored that investment in productivity-enhancing infrastructure had remained
low in Pak amid tight fiscal space. Quality of trade and transport related infrastructure like ports, roads,
railways and information technology were very poor. Islamabad faces an infrastructure financing gap
of about 5% of GDP, according to the ADB. The sector also lacks efficient and requisite management,
like the case of railways. The cost of transport sector inefficiencies was estimated at 4 % – 6% of GDP
annually.Against this backdrop, the ADB document underlined that through market reforms, Pakistan
needs to transform its economy into an export-led growth trajectory. In addition to improving the
economy’s competitiveness and productivity with a vibrant private sector, it was critical to attract
domestic and foreign investments to support this transformation.

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