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First time in two decades, domestic debt sustainability including PSE debt is in question; about 20 years back, the external debt servicing of the country was too high which was restructured and rescheduled then such as the Paris Club debt. Today, restructuring efforts are required for domestic public debt by enhancing the footprints of domestic private sector.
Two decades back, both public and private sector of Pakistan were poor; now after deregulation, privatization and liberalization efforts in the 1990s and the 2000s, the private sector has grown substantially and groups and companies are cash rich today. It is time to shift the burden of businesses to private hands.
In addition to the financial capabilities; management capacity and efficiencies in private sector are superior to the public sector. The good brains that were used to find government services as the best avenues till the 1990s are now thriving in the private companies. In government offices, the incentive structures are in favour of mediocrity with everyone amongst bureaucracy reaches 21 grade while the cut-throat competition in private sector separates the growth path of hard working and smart people. This coupled with accountability fear of NAB and apex court judges is further slowing down the decision making in the public domain.
It is a fallacy that businesses in general can be run efficiently and profitably in the public sector. What private sector can do in days, the public sector takes months to accomplish and that too at inflated cost. Moreover, given the enormity of the current macroeconomic predicament, the government does not have the luxury of time for any experiments. The current situation presents a unique dichotomy of financial resources availability in the economy. On the one hand, the government is confronted with mountainous fiscal deficit while on the other, there is huge financial slack available in the private sector.
The point of weaving together the argument of degrees in separation in financial, management and technical expertise of private and public sector is for the PTI economic team to revisit the idea of handling the ailing public sector entities, i.e., to work on a model with private hands, private money and risks to restructure and revitalize the white elephants, including PIA, PSM and DISCOs.
Asad's Idea is of forming 'Sarmaya Pakistan' - a holding company to take strategic decisions of turning around 200 state owned companies. The thinking is to slash the political influence on these companies by taking them out from line ministries and run under a strong board having full representation of private sector - out of 11 directors, eight are to be from private sector including chairman.
On the face of it, the private sector representation would be there at board level. The first challenge is to appoint board members, and more importantly let them take decisions on behalf of federal government. The turning around of companies would require equity injection and risky decisions - first the government does not have fiscal space to inject fresh equity, and the second point is that every decision would have a risk to fail - in that case, the accountability institutions may ask questions on integrity of the decision maker and media trial would malign the reputation of board members, and executives- seeing this many top business and policymaking minds in private sector may refrain to join Sarmaya Pakistan.
Even by using legal tools and political capital of government executives - in harmony with judiciary and the deep state, the decisions will take too much time. The delays are demonstrated by the fact that NBP's newly-appointed CEO has yet to join, the Competition Commission is yet to be complete, and even hiring in PIA is not from the private sector.
The government's own capacity is weak as its economic team is tilted towards private sector in policy making. The recent industrial reform package announced by Finance Minister is lauded by business community and the changes in the Finance Bill are well aligned with Pakistan Business Council's agenda of 'make in Pakistan'. There are a number of committees and task forces working on reforming various sectors with most members from private sector - energy task force is headed by a private player in energy sector, housing task force has influence of All Pakistan Builder Association (ABAD), APTMA head is working in advisory role and the list goes on.
It is good and bad at the same time, the private sector expertise is there in informed policy-making but conflict of interests comes on many occasions. The technocrats are missing and vibrant analysts and economists are missing within ministries. The government does not have the capacity but it still desires to expand its footprint in reforming PSEs.
The government should move away from doing businesses; it's the job of private sector and let them take the reins. The government's job is to regulate the sectors and companies and it should enhance its capacity in that domain by having right people in SBP, SECP, CCP, OGRA and NEPRA - unfortunately six months down the road, many positions in these institutions are vacant.
The government has to use its limited capacity and capabilities in the sectors which are purely in public domain. The focus should be on reforming taxation system and effectively use the public resources in providing purely public goods and services such as healthcare, education and policing. The government should make regulators strong to lower cartelization in various sectors.
Numerous businesses still operating, and mostly making losses, in public sector shall be given to private hands. The experience of privatization in Pakistan is very clear - banks, telecom and cement sectors thrived for both producers and consumers benefit. Let that revolution take place in other sectors, especially in energy sector.
Even K-Electric underwent remarkable transformation after privatisation and it was considered an almost impossible company to manage especially due to the hostile political and law and order situation of the city wherein it operated. Earlier attempts with even deployment of military personnel in the company had failed to bring about any improvement.
The present government should follow an aggressive privatisation program for sell-off PSEs such as DISCOs, PSM and PIA, perhaps beginning with relatively easier assets such as LESCO, IESCO and FESCO. Rather than divesting GoP shareholding, the government should privatise these entities by "fresh capital issuance" to the private buyers so that the privatization proceeds remain in the company and are used for undertaking capital investments. Such public private partnership models could have a win-win situation - with the government still entitled to dividends while the private hands putting money and expertise in the companies.

Copyright Business Recorder, 2019


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