Economic integration

Pakistan’s Regional Economic Integration: Challenges and Opportunities

As the momentum of global economic gravity continues to shift towards East Asia, the contours of a new economic and political geography in South Asia are also becoming visible with improved connectivity between Western China, the Pakistan and Central Asia. Led by China’s Belt and Road Initiative (BRI), this transition is already influencing thought patterns of politics, culture and economic development in the region. Long plagued by internal and geopolitical conflicts, it is also an opportunity to take advantage of its potential for economic prosperity, stability and human development. These changing times pose a great challenge to public and private sector leaders to step out of their comfort zones and capitalize on new economic opportunities and patterns of engagement with new players. It is pertinent to note that like the flourishing era of the ancient Silk Road, these emerging economic corridors are driven by the dynamics of economic proximity rather than security.

China-Pakistan Economic Corridor

China’s flagship BRI and the China-Pakistan Strategic Economic Corridor (CPEC) have laid a solid foundation for regional connectivity. The success of CPEC as a transformational investment is essential for China and Pakistan to demonstrate their ability to steer this region towards sustainable growth. Pakistan needs to work on several structural reforms to increase its institutional capacity to maximize the results of CPEC for the benefit of its large youth workforce.

China-Pakistan Economic Corridor

With improved power generation and transport connectivity infrastructure, bilateral trade between China and Pakistan increased to US$17.49 billion (S$23.48 billion). ) in 2020. Pakistan recorded an increase of almost 70% in its exports to China in the first quarter of 2021. with 888 million US dollars (1.19 billion Singapore dollars) against 526 million US dollars (706 million Singapore dollars) at the same time last year. The projected potential for bilateral trade is between US$80 billion and US$100 billion (S$105.8 billion and S$134.2 billion) by 2030, when most CPEC investments will be completed. However, to achieve this goal and have a favorable balance of trade, Pakistan will need to increase its per capita income, productivity and the quality of its exportable goods to meet international standards.

The challenges of structural change

For Pakistan, three areas of structural reform require urgent attention. First, it will have to strengthen the structure and orientation of its bureaucracy towards a pro-growth system. Second, there is a need to integrate the role of the private sector into economic diplomacy where geographical proximity plays a central role. Pakistan should also be willing to abandon inefficient sectors that have thrived on clientelism and state protection. Third, investment in regional knowledge networks will be crucial to maintain its key position in new regional markets. Pakistan needs to benefit from the research and development expertise of China and the rest of Asia and link its universities and think tanks with those of its Asian neighbours.

Pakistan’s economic structure and management have not changed much over the past three decades. Its economy grows steadily at 5-6%, then fails to sustain this growth rate due to chronic tax and balance of payments imbalances. The momentum is thus broken and the emphasis is placed on stabilization through monetary tightening and the compromise of the investments necessary for a period of sustained growth. Pakistan needs to work on a competitive economic value proposition to attract foreign direct investment from China and the rest of the world. With one of the lowest savings and investment to gross domestic product (GDP) ratios in emerging Asia, there is a need to create the required fiscal space and investor-friendly policy continuity to double the investment to GDP ratio.

Pakistan needs more than 7% sustained growth to reach middle-income country level over the next 10 years. This will create jobs for its vast workforce. However, only a competent economic team, supported by all political and institutional power structures, can achieve this.

Geopolitical challenge

The recent rather abrupt withdrawal of the US-led coalition from Afghanistan must be seen in the context of the China-led transformational regional transition. After more than 40 years of conflict, Afghanistan remains a major obstacle to stability and shared regional economic prosperity. Its economy is set to plunge after the recent capital flight, suspension of aid, central bank reserves of $9 billion (S$12.08 billion) and the International Monetary Fund’s post-COVID support package. -19 of $450 million (S$604 million). Nearly 90% of the population lives below the poverty line of US$2 (Singaporean$2.68) a day, and more than 50% of the population relies heavily on basic agriculture as their main source of livelihood.

Stability in Afghanistan is linked to the timely implementation of connectivity infrastructure projects in Pakistan, Iran and Central Asia. China is investing heavily in the development of its western provinces bordering Pakistan, Tajikistan and the Kyrgyz Republic. Any destabilization in Afghanistan will slow the pace of development in these regions.

Optimistically, in the medium term, Afghanistan’s advantage lies in its central position to link South and Central Asia to markets in the Middle East, and its vast mineral resources are estimated at over 1 trillion USD. US dollars (1,340 billion Singapore dollars). These strategic endowments directly complement China’s ambitions and expertise in regional connectivity to develop mining development support infrastructure.

At this point, China, Pakistan and other neighboring countries are in the best position to tap into these precious endowments and connect Afghanistan to Western China through CPEC.

(About the author: Haroon Sharif served as Minister of State and Chairman of the Pakistan Investment Council in 2018-2019. He remained Pakistan’s main representative for industrial cooperation in the Joint Cooperation Committee of the China-Pakistan Economic Corridor and can be contacted at [email protected])

– Eurasia Review