Privatisation programme

The IMF has admitted that Pakistan’s multi-billion dollar privatisation programme has “faced setbacks” and that the entire situation is “fluid”, a statement that comes after months of failed attempts on the part of the government to take the process forward. Several companies were on the list of privatisation, categorised across capital market transactions and inviting strategic private partners. The government’s first failed attempt was in trying to float the shares of OGDCL, but tumbling oil prices meant that investors’ interest was minimal. It managed to sell its stakes in profitable banks, but privatising power distribution companies and other state-owned entities has remained problematic. The Pakistan Steel Mills and PIA also present a unique set of challenges, which brings the issue down to politics and this is where the problem lies. The IMF’s statement is just one step away from stating that the privatisation programme has failed and, given that there are less than five months remaining in the completion of the $6.2 billion Extended Fund Facility, no notable progress can be made in the time left.



The point of privatisation was not just to sell stakes in profitable companies to raise money that would eventually go into debt servicing. It was meant to reduce the burden on the federal budget that is tapped every time a problematic and loss-making entity needs a bailout to keep itself afloat. The plan was simple — restructure and reform the entity to the extent that it reduces its losses or becomes attractive enough for a prospective buyer. In its communications with the IMF, the government has maintained its stance, apprising the lender of its constant progress on the privatisation front. We admit that some progress was made. But this has not been enough to achieve any tangible success on ground. Power distribution companies may have reduced their losses, but circular debt is piling up again. Bill recovery in the power sector is still problematic and inefficiency prevails. The IMF bailout may have helped Pakistan avert a balance of payments crisis, but deep-rooted structural issues are yet to be resolved. All this begs the question: what was the actual purpose of the so-called privatisation programme when the government failed to well and truly reform any state-owned entity?

Published in The Express Tribune, April 4^th,  2016.

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