IMF blocks incentives for Pakistan’s SEZs, move to likely impact Chinese investment

The International Monetary Fund (IMF) asked Pakistan to stop setting up any industrial zone that offers incentives for investment, in a move that may undermine Islamabad’s efforts to attract more Chinese industries into the country.

The authorities will refrain from providing incentives such as tax breaks and subsidies to any new or existing special economic zones, the Washington-based lender said in its report released on Oct. 10. This will help provide a level playing field for investment, said the report.

The IMF’s condition comes as Prime Minster Shehbaz Sharif is trying to convince Chinese companies to shift more industries into Pakistan thereby giving a fresh momentum to projects under its Belt and Road Initiative. The country had planned to build at least nine special economic zones under the China-Pakistan Economic Corridor project that are at various stages of development.

The lender asked Pakistan to offer a level playing field to businesses to attract investments without undermining the country’s tax base, according to Nathan Porter, IMF’s mission chief for Pakistan. The country has provided protection or concessions to sectors that were low in productivity, he said in a briefing last month, the reason why Pakistan hasn’t been able to achieve the kind of sustainable growth rates many of its regional peers have.

Immediate Hit

The demand from IMF is expected to immediately hit a new export processing zone that the government plans to build at the site of Pakistan Steel Mills in Karachi, Pakistan’s commercial capital in south.

Pakistan authorities, after securing a $7 billion loan from the IMF, are working to invite about 100 major Chinese industries to invest in the textile parks that Ruyi Shandong Group will start building in its southern Sindh and central Punjab provinces later this year.

The Sharif government has been wooing investors through offering special tax incentives, including exemptions from paying taxes and customs duties on imported goods, to businesses set up in such industrial zones.

China has built major infrastructure and energy projects in Pakistan to push its flagship economic corridor project that has helped the nation but left the country burdened by huge debts.

Disclaimer: This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.