Pakistan has accepted a critical International Monetary Fund (IMF) condition under the $7 billion Extended Fund Facility (EFF), agreeing not to establish any new special economic or export processing zones, the sources told PakProfile.com.
Additionally, tax incentives previously granted to existing zones will not be extended after their expiration, a move that will impact government plans, especially the proposed Export Processing Zone (EPZ) on the Pakistan Steel Mills (PSM) land.
The IMF’s condition, applicable to both federal and provincial governments, is expected to hinder Pakistan’s industrial expansion and limit opportunities to attract foreign investment, particularly from China. However, the Khyber Pakhtunkhwa government has resisted the condition, stressing the need for economic zones to foster industrial growth in less developed provinces.
The government has already accepted numerous stringent IMF conditions, such as imposing Rs1.8 trillion in new taxes and increasing electricity prices by up to 51%. Despite these measures, Pakistan has yet to secure a date for the approval of the IMF bailout package, despite the lapse of over two months since reaching a staff-level agreement in July.
The IMF’s ban on new zones comes as a blow to Pakistan’s long-term industrial ambitions. The government had planned to establish nine Special Economic Zones (SEZs) under the China-Pakistan Economic Corridor (CPEC), with work already underway on two zones: the Rashakai SEZ in Khyber Pakhtunkhwa and the Allama Iqbal Industrial City in Faisalabad. Other projects in various stages of planning, such as the Dhabeji SEZ in Sindh and the Bostan SEZ in Balochistan, are now in jeopardy.
Finance Ministry dominance in IMF negotiations, sidelining the Planning Commission, has resulted in the acceptance of conditions that many argue could carry long-term socio-economic costs. Critics claim that such measures, while fiscally prudent, hinder Pakistan’s ability to foster industrial growth and attract Chinese investment.
Khyber Pakhtunkhwa’s Finance Adviser Muzammil Aslam stated that provinces need the flexibility to create competitive tax policies to attract industries. He further emphasized that the IMF should not dictate such provincial-level decisions.
The IMF condition will also affect numerous other projects, including the ICT Model Industrial Zone in Islamabad, the Mirpur Industrial Zone, and the Mohmand Marble City. Government officials fear this could deepen suspicions that the IMF’s policies are designed to target Pakistan’s growing relationship with China.
Despite these challenges, Pakistan remains committed to attracting Chinese industries to these zones as part of the second phase of CPEC. A high-level Chinese business delegation recently visited the Special Investment Facilitation Council (SIFC) to explore investment opportunities in key sectors like agriculture, energy, minerals, and industry. The delegation expressed keen interest in relocating Chinese industries to Pakistan, including the Gilgit-Baltistan region.
