Though Pakistan has been granted few month’s reprieve from the grilling regime of FATF but the policy makers would not be allowed even such a narrow space by the IMF that is insisting on increase in revenues that has not been found possible up to now despite the efforts of the taxation machinery. The incumbent government appears not very hopeful about the potential of the FBR in bringing about a substantial increase in revenue figures and the political high-ups have tacitly conceded this point. Keeping in view the sticky situation the government financial managers are now concentrating on disposing-off more of the family silver to raise money to meet IMF demands.
In this context the official financial managers have finalised a portfolio of 84 out of a total of 212 public sector companies for their ultimate privatisation, liquidation or retention in the public sector to meet a structural benchmark of the International Monetary Fund (IMF) programme. This policy was on the anvil since sometime but the bureaucratic lethargy coupled with the apprehensions of adverse reaction from the employees of these entitities had held back required action about them. Yet the overall revenues of all these 84 state-owned entities (SOEs) amounted to about Rs.4 trillion while the book value of their assets stood at Rs.19 trillion. Moreover it was pointed out that their revenues were approximately 10 per cent of nominal GDP and they provided employment to more than 450,000 people constituting a mere 0.8 per cent of the total workforce.
It was mentioned that as part of the Extended Fund Facility with IMF, the government has agreed to address the long-overdue need of a comprehensive review of SOEs for their continued ownership and control by the government through a well-defined ownership rationale. The official finance managers are working in tandem with IMF and the Asian Development Bank to draft an SOE Bill and an SOE Ownership and Management Policy to fill the gaps in the existing SOEs governance structure and help the government in well-informed performance evaluation and oversight of SOEs.
Though the important role of SOEs is recognised in providing essential public goods and services yet the financial performance of several SOEs has remained below-par. These 84 commercial SOEs collectively recorded net losses of Rs.143 billion that had come down from Rs.287 billion in the previous year but the improvement in SOEs performance was driven by government policies including robust business growth in local upstream oil and gas markets translating into significant gains for oil and gas companies and policy reforms and operational improvements in the power sector leading to timely tariff notifications in the power sector.
It has been also mentioned in a related report that a total of 25 SOEs which together earned a cumulative profitability of Rs.107 billion would be retained by the government. Another 14 companies are retained in the public sector and would be restructured while 10 other companies were already under the privatisation programme and yet another 24 companies would be privatised in the next phase between 2023 and 2024. There are about 10 other companies which have been described as potential candidates for privatisation while one entity — Industrial Development Bank Ltd — is currently under liquidation.
It was also made known that four companies having total profitability of Rs.51.4 billion were financially viable and would be retained in the government hands. These include Government Holding Private Ltd with a profit of Rs.34 billion, Pak Arab Refinery Ltd earning Rs.12.3 billion, Pak-Kuwait Investment Company making Rs.4.7 billion and Pakistan Revenue Automation Ltd earning a profit Rs.146 million but over the past six years, one-third of the commercial SOEs experienced losses intermittently. Moreover, the sum of the losses of top-10 loss-making SOEs contributed around 90 per cent to the total losses of SOEs portfolio each year. National Highway Authority (NHA), Pakistan Railways, PIA and power sector Discos had been among the major, top 10 loss-making SOEs.
Among the SOEs performing core functions, 25 SOEs were profitable, another 19 entities had been consistently profit-making during the last three years however, their return on assets (ROA) had been lower than the threshold required. Another two SOEs — Central Power Purchasing Agency (CPPA) and Pak-Iran Investment Company – have positive equity and were profitable in FY17 and FY19. Although these SOEs are financially self-sustaining their financial performance needs improvement which is required to be addressed through institutional reforms to be undertaken including governance improvement through an SOE Ownership and Management Policy, operationalisation of the Central Monitoring Unit in Finance Division and the introduction of an SOE Bill in the parliament.
Apart from sector-specific reforms that will be undertaken from time to time, a well-structured and institutionalised mechanism of performance monitoring and reporting of SOEs is required to be put in place through the SOE Ownership and Management Policy with the objective of improving the financial outcomes of these SOEs to the desired level. There are 14 entities which are planned to be retained under government ownership but require immediate reforms and possible restructuring. Among them Pakistan Railways and Pakistan International Airlines, which collectively incurred a loss of Rs.88 billion are already under active restructuring and reform process. TW