EDITORIAL: It is increasingly appears that the federal government has a new priority. As per a Business Recorder report, Prime Minister Shehbaz Sharif, while chairing a review meeting on the ongoing State-Owned Enterprises (SOEs) underscored the need for carrying out reforms on a priority basis.
This sounds encouraging but would have carried more weight had the remarks not come just shortly before the installation of a caretaker setup ahead of the general election in the country.
That the challenge of reforms in SOEs has been under intense discussion among global lenders in particular for quite some time is a fact. As a result of which, special committees have been formed, multilateral agencies consulted, timelines issued and much more in order to achieve the desired outcomes.
Unfortunately, however, there had been little or no progress in this regard. Needless to say, successive governments paid lip service to the challenge or objective of reforms in SOEs but they didn’t want to do anything about them owing to a variety of reasons, including political exigencies.
It is important to note that the IMF (International Monetary Fund) in its recently released country report on Pakistan has identified or described SOE reform as one of the ten key structural benchmarks.
The IMF requires the federal government to improve SOE governance by operationalising the recently approved SOE law, which has been widely described as an ‘ambitious piece of legislation, through a policy that injects the required clarity into ownership arrangements and the division of roles within the federal government and amending the laws governing the four selected SOEs to make the new SOE law applicable to those SOEs in totality.
The deadline for achieving the structural benchmark is end-November 2019. It is now increasingly clear that a caretaker government will be in charge between now and the arrival of a new elected government after the general election in October or November this year.
Therefore, the question whether or not the pledges made with regard to the IMF’s structural benchmarks will be honoured during this interim period has no easy answer at this point in time.
Recall that the Parliament had passed a bill in January 2023 that was later announced in the official gazette as an Act on February 2, 2023 “to provide for governance and operation of the management and financial efficiency of state-owned enterprises owned and controlled by the Federal Government.” A draft policy was circulated in April 2023 for comments within 15 days. Nothing much has been heard since, and that certainly does not look like “priority” business.
It goes without saying that the bleeding commercial SOEs are arguably the second biggest drag on the fiscal kitty after the energy sector. When looked closely, there is also an overlap of SOEs’ performance in the power sector, particularly in state-owned generation and distribution companies.
A number of distribution companies have made it to the top-ten loss-making SOEs for five consecutive years, with no improvement in sight. Yet, business as usual continues as the steps taken by authorities remain confined to either passing on the cost of inefficiency to the end consumers or adding to fiscal indiscipline via unsustainable subsidies, and frequent governing board overhauls.
Neither the FY24 federal budget nor any IMF projection has made room for any privatization proceeds for the ongoing fiscal year. It has been years since any meaningful privatisation or sell-off of public-sector entity took place other than divestment of shares in oil and gas exploration companies.
The seriousness of government or a lack of it can be gauged from the fact that the latest available information on SOEs’ financial state of affairs pertains to FY18-19, made public more than two years ago.
The reform agenda under the Triage report was built around that information with the help of the IMF, World Bank, and the Asian Development Bank. That report was tipped to serve as the basic policy document for all the line ministries and other stakeholders, as it outlined SOEs that needed restructuring without liquidation, and those that needed to be let go.
Two years and counting, the active privatisation list stays unchanged, with no progress on any front, from hiring of financial advisor to completion of due diligence.
The likes of PIA and Pakistan Railways have been listed under the category of “SOEs retained and restructured”, whereas power generation companies and two RLNG-based power plants are supposedly “already under privatization.” It goes without saying that reforms in SOEs will be a painful exercise and must be done right, but merely hollow words and setting up of monitoring units have not worked in past and will not work in future as well.
The fiscal implications of SOEs’ bleeding run into hundreds of billions of rupees through loans, subsidies, and grants. Pakistan can ill-afford to be complacent any longer. Business as usual is business of catastrophe, especially when it comes to SOEs in Pakistan. We, therefore, can’t simply return to business as usual.
Copyright Business Recorder, 2023