Bleeding SOEs
The World Bank has offered a less-than-ringing endorsement of the Pakistani government’s ability to run businesses, rating Pakistan’s state-owned entities (SOEs) are the worst in South Asia, going as far as saying the massive lossmakers are creating a risk to the exchequer. The Bank’s Public Expenditure Review 2023 says that instead of bringing in money, Pakistani SOEs cost taxpayers over Rs458 billion to stay afloat and that the combined value of loans and guarantees associated with them is about 10% of GDP. For context, that value was about 3.1% of GDP in 2016, meaning that not only are the companies failing to turn around their bottom lines, but they have become an even bigger drain on the taxpayer. Even the handful of SOEs that generated profits are concentrated in the oil and gas sector, which is structured in a way that it is almost impossible for even the worst-run companies to lose money. And although the report mostly only runs up to FY21, we know from official data and media reports that no SOEs — outside of the oil and gas sector — have been particularly successful since then.
While the government is introducing a bill to reform SOE operations and limit new SOE formation, the lack of success of previous reforms would indicate that the only reliable option remains privatisation, especially if buyers are willing to take on debt. Even though privatisation takes months and years, any money raised through sales could help pay down the debt and give some temporary breathing room while longer-term structural reforms are implemented in the broader economy. Lawmaking should be restricted to avoiding a new Pakistan Steel Mills-like situation, where the government has been paying salaries for almost a decade after business operations were shuttered. But between constituency politics, vested interests and competence, no government appears able and willing to do what is necessary and admit that these so-called national assets are actually national liabilities.
Published in The Express Tribune, April 26th, 2023.
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