Wealth fund with the IMF

Not long after the government made it explicit it was not going to privatise Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM) in the near future, it has made it known what it intends to do with the loss-making state-owned entities. Top government functionaries have shared a plan to create a ‘wealth fund’ with the visiting IMF team. The stated goal is to manage the affairs of gargantuan state entities, such as these two, in a way that they stop bleeding the taxpayers dry and begin turning a profit before their selloff is contemplated. Reforming the public sector burdened by debt and overcapacity is key to restoring growth in the economy.

PIA and Steel Mills are vivid examples of the challenges facing the nation’s inefficient and debt-ridden state-owned enterprises. Cash injections from state coffers have been keeping them afloat and putting unsustainable burden on the treasury. Previous efforts at disposing of such unwieldy public-sector enterprises have met with failure, partly because of the huge liabilities they carry in the form of unreturned bank loans as well as protests by employee unions. According to a media report, the government told the international lender that it has decided not to offer PIA, PSM, Pakis¬tan Railways, Utility Stores Corporation, Nat¬ional Highway Authority and the Civil Aviation Authority for privatisation. It wants to make the loss-making public sector enterprises financially robust before they go under the hammer.

For this purpose the government would create a wealth fund to finance a turnaround plan for these bleeding entities. It was argued that once the lossmaking public sector enterprises are turned around, they would attract a higher price than what they are expected to at present. On the face of it, the plan looks neat and plausible but questions remain about how such a fund would receive funding, given how precarious the country’s financial position already is. Policymakers must have thought through this proposition before floating the idea. If this plan is to succeed, initiatives must be outlined aimed at imposing market discipline on state entities, so that the intended turnaround is achieved.

 

Published in The Express Tribune, November 12^th, 2018.

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