Since its inception, Pakistan has been facing multifarious and multifaceted challenges that have kept it away from economic growth and sustainability. Many factors are pushing toward financial instability. One of the key factors is the annual loss of government-owned machinery. According to the Finance Commission of Pakistan, “Aggregate losses of these entities for the past 10 years totaled Rs 5,595 Billion.” The only solution to reduce this heavy loss is to sell these SOEs to a private vendor. By privatizing these state-owned enterprises (SOEs), the government would be relieved of significant financial burdens. Coupled with this, public service delivery would improve, and more investment would be encouraged. In the upcoming debate, we will discuss some success stories of privatization. In essence, in an ever-evolving world, the power of privatization stands as a beacon of hope and a catalyst for progress.
Before highlighting why privatization is the need of the hour, it is imperative to shed some light on the concept of Privatization. The simple explanation of it is the selling of State Owned Enterprises (SOEs) to the private sector. Privatizing state-owned enterprises (SOEs) is not a novel concept in Pakistan. The country embarked on a major privatization drive in 1991 during the first Nawaz Sharif government. This initiative reached its peak during the Musharraf era, from 1999 to 2008, with nearly 169 government-owned enterprises undergoing privatization. The ultimate aim of doing so is to reduce the financial burden from the shoulders of the state and to enhance economic efficiency. There are many methods of privatization. Chief among them, however, is outsourcing; lease with buying rights; Public tender; and infrastructure partnership.
The foremost impact of privatization on Pakistan’s economy is that it will ease the Pakistani government and reduce the burden. Not only it will help in covering the loss of 5.5 billion rupees, but also it will help the government to allocate resources more effectively to key sectors, such as health, education, infrastructure, and social programs. A book reference that merits here is that of the book by Dr Hafiz Pasha. In his book, “Growth and Inequality in Pakistan: Agenda for Reforms” he emphasizes that privatization has the potential to reduce fiscal pressures and ease the strain on public finances. Consequently, privatization can help in stabilizing Pakistan’s depleting economy.
Furthermore, privatization helps to improve public service delivery. There are almost 200 SOEs, out of which 90% are severely damaged due to poor management and inefficiency. According to Naeem Zafar, Chief Economist for the Government of Sindh and a former member of the Planning Commission, some state-owned enterprises (SOEs) are in a dire organizational and financial state, with a discouraging record of failed reform efforts. If these SOEs are given to the private sector, it will improve efficiency and public service. One of the prime examples in this regard is KE. It was privatized in 2005, with 66% of its shares acquired by KES Power, a consortium of Middle Eastern investors, while the Government of Pakistan retained a 24% minority stake. Before privatization, KE (then KESC) was incurring significant losses, which the government had to cover. Since privatization, KE has drastically improved its operational efficiency, reducing T&D losses from 34.2% to 15.3% over 15 years. These efficiency gains have resulted in an annual tariff reduction benefit of Rs170 billion and added Rs13 billion to the national tax base. To cut it short, privatization is the panacea to ridding Pakistan’s economy of its deadweight loss and to improve efficiency.
Likewise, privatization acts as a driving force to attract foreign direct investment (FDI) and energize the country’s economy. One of the biggest sources of Pakistan’s economy is FDI. According to the State Bank of Pakistan, “Pakistan’s foreign direct investment (FDI) in the fiscal year 2023 (FY23) was $1.627 billion.” FDI slowed down by a staggering 25% in FY23 when compared with foreign investment of $1.93 billion in FY22. Thus, privatization has the potential to boost that FDI to 150% more. According to the World Bank, “Privatization when correctly implemented, fosters efficiency, encourages investments, and free public resources for investment in infrastructure and social programs.” To conclude, FDI would be increased drastically if the privatization process are completed efficiently.
Privatization is a bitter pill, but it is a pill that will cure. There are few actions that neither require rocket science nor massive resources. In the 1990s, the government appointed a British firm, N M Rothschild, as a consultant to undertake a study on privatization strategy. This was a step in the right direction. After analyzing 50 companies, he short-listed seven companies that are to be privatized. However, due to political instability that program was abounded. One of the shortlisted companies was PIA. It has been more than three decades; PIA is still in the hands of the state. Every year it is just increasing the total debt of the state.
The government has, finally, realized that reforming and revamping these SOEs is impossible. Therefore, the incumbent government has decided to speed up the process of privatization. According to the Privatization Commission of Pakistan, the privatization of PIA will be completed in October 2024. Not only PIA but also the government decided to sell all the SOEs to reduce the burden of loss and to attain economic sustainability. According to Prime Minister, Shahbaz Sharif, “The government would privatize all state-owned enterprises, excluding the strategic ones, regardless of their profitability or financial losses.” This is a step in the right direction.
Privatization is the key to economic sustainability. This can be proved by the success stories of privatization. The case studies of the MCB and the PTCL can help us to conclude that privatization is the right step. MCB was the first bank that was privatized in the 1990s. The government decided to sell a 26% share to the National group at Rs 56 per share. The result was outstanding. The bank deposits grew 184% more in 1995 as compared to 1991. Similarly, UAE Company purchased 26% of the shares of PTCL in 2006. The assets turnover ratio in 2006 was 0.48%. In contrast, PTCL posted revenue of Rs 96.3 billion for the year 2023, with an increase of 15% each year. These two case studies are eye-opening for the government. Therefore, it is time to reap the grievances and make the economy better by adopting privatization policies.
Summing up, it can be said that privatization is the new vista for Pakistan’s economy. Stuck in a protracted cycle of stagflation, Pakistan’s economy faces numerous challenges. Its assets are becoming liabilities. It has hobbled human development and public delivery. The privatization process can fix this evolving problem. It not only reduces the burden but also attracts foreign direct investment. Therefore, it is high time to turn the table on privatization if the country wants to stabilize its economy.
The bottom line is, that Pakistan has going through a rough patch. Devising a workable privatization policy will help a lot at this juncture. Pakistan has a lot of intellectual thinkers and excellent finance experts. It is unthinkable that they cannot sit down and make a viable privatization policy. The incumbent government, however, has already taken a good step. It decided to privatize all the SOEs, apart from strategic ones. They should hurry up, lest Pakistan will be left behind and the world will move on. As stated by Darwin, a renowned scholar, “The world will not be inherited by those who are powerful, but by those who are most able to change and adapt.”
