Privatising loss-making SOEs can ensure long-term stability: ICMA

KARACHI: The Institute of Cost and Management Accountants of Pakistan (ICMA) has released a Policy Note concluding that privatizing loss-making State-Owned Enterprises (SOEs) can provide long-term stability to the government’s financial and budgetary position.

The Policy Note, prepared by ICMA’s Research & Publication Department, presents an in-depth analysis of the financial strain these SOEs place on the national economy and proposes strategic solutions for mitigating these challenges. It warns that if current trends continue, the government’s deficit could rise dramatically.

To mitigate this risk, ICMA advocates for restructuring or privatizing these enterprises. The Policy Note further highlights the urgent need for reforms in the management of SOEs, which continue to receive substantial financial support from the government despite the persistent budget deficit.

According to ICMA’s findings, the government’s financial deficit could escalate to 22-24 percent per annum if the current trend continues, potentially tripling the existing deficit.

To counter this alarming possibility, ICMA recommends restructuring these enterprises or, where necessary, considering their privatization. ICMA’s analysis also provides a thorough review of the financial profiles, historical performance, accumulated losses, and the extent of government support received by loss-making SOEs over the years.

ICMA’s study mentions that official government sources, including the Ministry of Finance, reveal that around ten SOEs are responsible for 90 percent of the total losses incurred by all state-owned entities. These statistics highlight the urgency of implementing strategic interventions to address the financial issues of these entities and relieve the government’s fiscal burden.

The Policy Note also reviews historical data on previously privatized SOEs, finding that most have become profitable over time. This supports the hypothesis that privatizing the proposed loss-making SOEs, including the National Highway Authority (NHA), Pakistan International Airlines Corporation (PIAC), Pakistan Steel Mills Limited (PSML), and Pakistan Railways (PR), would eventually ease the government’s financial burden and contribute to budget stability and long-term economic growth.

Copyright Business Recorder, 2024