The government has conceded to the International Monetary Fund’s (IMF) demand to rewrite the Pakistan Sovereign Wealth Fund (PSWF) Act, aiming to end secrecy in its fiscal and governance affairs and ban the direct sale of assets to foreign nations. Sources informed The Express Tribune that the government committed in writing to the IMF to omit some sections of the law and amend others. These changes are part of the Memorandum for Economic and Financial Policies (MEFP) for the new $7 billion bailout package.
As a result, the State Bank of Pakistan (SBP) will be prohibited from lending money to the fund, and the sovereign wealth fund will be banned from providing loans to any government entity. The fund will also be restricted to selling its owned and controlled companies only through international competitive bidding, abandoning negotiated sales. In yet another major change, the wealth fund cannot retain revenues, which will now be surrendered to the national exchequer.
Sources stated that Pakistan will implement these legal changes before the end of December, reshaping the Pakistan Sovereign Wealth Fund due to these imposed limitations. Finance Ministry Spokesperson Qumar Abbasi confirmed that the government would introduce legal changes to adopt the best global management and financial practices.
The existing law allows the central bank to lend money to the sovereign fund, but the government has agreed to cease central bank contributions or lending to the fund.
The Pakistan Democratic Movement (PDM) government had enacted the PSWF Act to transfer shares of seven profitable entities in the first phase and then sell them overseas to raise money. These entities include the Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited, Mari Petroleum, National Bank of Pakistan, Pakistan Development Fund, Government Holdings (Private) Limited, and Neelum-Jhelum Hydropower Company.
Four of these seven companies earned a net profit of Rs386 billion in the fiscal year 2022-23, with OGDCL being the most profitable entity, earning Rs225 billion, according to the Ministry of Finance’s report.
As a major concession, Pakistan has agreed to omit Section 50 from the PSWF Act, applying the State-Owned Enterprises (SOEs) Act 2023 to these seven companies. The existing law exempts state-owned enterprises majority-owned by the fund from the SOE Act. Sources said that the amended law will explicitly clarify that all government-owned entities are subject to the SOE Act and SOE Policy.
Pakistan has also committed to amending all relevant sections of the law that deal with the objectives, businesses, governance, sources of revenue, withdrawal of funds, and public asset management of the wealth fund. Currently, the fund is empowered to handle the sale and purchase of domestic and foreign equity securities, debt securities, derivatives, commodities, and other financial assets. It can also enter agreements as a private party or implementing agency in Public-Private Partnerships, and it can acquire, own, sell, or transfer any tangible and intangible, movable or immovable assets. The existing law permits the sovereign fund to participate in the privatisation process to acquire ownership of state-owned enterprises or provide financial advisory services in the privatisation process. However, after the new amendments, all these rights will be terminated.
According to sources, under the Pakistan-IMF deal, the sovereign fund will not be entitled to become a private partner in any public-private partnership venture and will not participate in any privatisation process. Additionally, the fund will surrender all revenues received from its operations or from dividend payments directly to the government.
The fund will also not sell or divest assets of the SOEs under its ownership or control without open, competitive, transparent, and non-discriminatory procedures, said the sources. This addresses a major IMF concern that the government might sell these companies to Gulf countries non-transparently, without proper price discovery, according to the sources.
The government has committed to appointing the Board and Advisory Committee of the sovereign fund through transparent, merit-based, and participatory processes. Pakistan has also pledged to bring transparency and ensure accountability for all financial transactions carried out by the wealth fund.
According to another condition, the government will introduce proper checks and balances on the powers of the Supervisory Council of the PSWF, which is chaired by the prime minister and includes the minister of finance, minister of planning, finance secretary, SBP governor, and the CEO of the fund. The government will define the Sovereign Wealth Fund legally, bringing it under the umbrella of the SOE Act. The federal government, rather than the Supervisory Council, will now approve the annual investment plan of the wealth fund, while the Council will approve the overall investment strategy.
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ