The Cabinet has approved a bail-out package for Pakistan Railways (PR) amounting to 11.5 billion rupees and enhanced its overdraft facility from the State Bank of Pakistan by 10 billion rupees. Analysts are agreed that railway remains the cheapest form of transport for both people and goods and hence there have been no attempts anywhere in the world to phase it out.
And this is in spite of massive losses that most of the world's railways were subjected to at some point in their history - losses attributable to poor state supplied management that limited its capacity to take bold decisions premised on economics and not politics.
Thus profitable railways in the world today at one time in the not too distant past were overstaffed, with organised labour that held any incumbent government hostage to their demands and the state's perception that it was its responsibility to ensure that the railways continued to operate on unprofitable routes, a decision targeted on meeting the needs of the most vulnerable.
These elements led to little or no annual outlay on maintenance and a general decay of the service as provided by the railways. The proven solution to turn railways is well known: privatisation of profitable rail routes and empowering the new management/owners to rationalise staffing and tariffs.
The Cabinet was at pains to point out that this bail-out package is for the interim period or till the restructuring plan is formulated and approved, a plan that includes all the white elephant namely PR as well as Pakistan International Airlines (PIA), National Highway Authority (NHA), Trading Corporation of Pakistan (TCP) and Utility Stores Corporation (USC).
This period, Information Minister Kaira said in his post-Cabinet briefing, would end by the time the next cabinet meeting is held, scheduled in a month's time when all plans for restructuring would be presented to the Cabinet. However, it is doubtful if implementation of the plan will commence immediately especially considering that President Zardari gave the time line of 4 to 6 months before the implementation of any business plan will start.
Thus the 20-odd billion rupees (around 24 million dollars) that would be extended to PR are expected to cover a period of five to seven months. One would hope that the government is cognisant of the fact that this amount that would be injected into the economy would be highly inflationary and its negative implications on the already under pressure budget deficit target for the current year, without a commensurate rise in revenue generation capacity, is likely to be considerable.
In addition, analysts are angered as the government of Pakistan continues to resort to bail-out packages, which have become a thing of the past even in richer Western democracies. A consensus has emerged that belt-tightening is rather wiser from an economic perspective relative to bail-out packages of inefficiently run state-owned entities (SOEs) even though it has massive political implications for the incumbent party.
Protests that have often turned violent are evident not only in Greece compelled to tighten its belt as per the International Monetary Fund (IMF) prescriptions but also in the UK and other parts of Europe. In other words unpopular decisions are the norm given the severe recessionary phase throughout the world, barring China and India. Pakistan which is on an IMF programme is unfortunately going ahead with policies that appear to be political in nature.
While government supporters may point out credibly that they are not going to compromise existing employment levels and therefore are not going to allow rationalisation of staff in SOEs or overburden the public by allowing a rise in tariffs on services/products provided yet it must be borne in mind that the government is reaching the point of no return: heavier reliance on the highly inflationary domestic borrowing as a consequence of continuing bail-out packages with the international community no longer willing to continue to extend support.
The alternative therefore is much more dire. However what is more or less distinct in Pakistan's case with respect to performance of the country's white elephants is the selection of senior staff by the incumbent government. Several of the entities targeted for restructuring have been in the limelight recently due to exercise of poor judgement by the Executive in making appointments.
The list is exhaustive and includes Pakistan Steel Mills, OGDC, NHA and PIA. That needs to change on a priority basis. One can only hope that the government announces someone with the necessary experience and qualifications to head the PR otherwise the 20 billion rupees may well imply throwing good money over bad.