Privatisation board: Heads being scratched as deadline looms
PC launches ‘aggressive’ plan to sell govt stake in OGDC, PPL, UBL.
The Privatisation Commission believes that by April 16 the financial advisers for PIA and other entities that have been approved for privatisation will be hired. PHOTO: FILE
ISLAMABAD:
As Pakistan enters the home stretch of the financial year, the government is left with only three months to deliver on the promise of raising $1.5 billion through privatisation to build foreign exchange reserves and meet budget deficit target, or be ready to increase the interest rates.
The Privatisation Board held a meeting on Wednesday and agreed on aggressive time lines to sell the government’s stakes in Oil and Gas Development Company Limited, Pakistan Petroleum Limited and United Bank Limited before end of June. The plan is to raise $1.5 billion to meet the June-end target, that involves an increase in the official reserves to over $9 billion and reduction in the gap between national income and expenditures to achieve the budget deficit target of 5.8% of the GDP.
“The plan is aggressive and challenging and risks are high but it’s not my style to give up”, said Muhammad Zubair, chairman of the Privatisation Commission while talking to The Express Tribune.
But Zubair said he was also dependent on other stakeholders including transaction-specific financial advisors for full delivery of the plan.
The reality is that the Privatisation Commission has so far missed all its deadlines. Under its $6.7 billion three-year bailout package, the International Monetary Fund (IMF) had asked Pakistan to hire a financial adviser by December 2013 who would prepare a plan to sell 26% shares of Pakistan Airlines. The deadline was missed and extended to March 2013, which has again been missed.
The government has blamed the All Pakistan Newspaper Society for the delay, as the APNS blocked all official advertisements after the government failed to clear the advertisement bills, which also created financial problems for media houses. The APNS temporarily lifted the ban last month, allowing the government to advertise.
Zubair said that both Prime Minister Nawaz Sharif and Finance Minister Ishaq Dar wanted quick progress in the existing conditions of 11 state-owned entities, already cleared for privatisation and capital market transactions.
The Privatisation Commission believes that by April 16 the FA for PIA and other entities that have been approved for privatisation will be hired.
But officials from both the IMF and Asian Development Bank think that the $1.5 billion privatisation target seems difficult to achieve.
The ADB’s country director to Pakistan, Werner Liepach, said on Tuesday that the likely delay in privatisation proceeds could pose a risk to budget deficit target.
In its latest report, which was released last week, the IMF noted that Pakistan was still committed to their original timeline for capital market transactions, but a delay in hiring advisers would leave them with a high risk that the first transactions would slip beyond end-June. The failure of meeting this target could require compensatory measures to reach the reserves accumulation target, said the IMF.
Currently, the gross reserves held by SBP are just $4.4 billion including $1.5 billion Saudi Arabia aid.
Cost of time overruns
“(IMF) staff stressed that the authorities (Pakistan) should stand ready to take additional action, including increased foreign exchanges purchases and further tightening of monetary policy if there are delays in anticipated inflows (e.g., from privatizations),” according to the IMF report.
The $1.5 billion is part of the $5.8 billion foreign inflows that Pakistan has budgeted for the current fiscal year 2013-14.
In the last five months alone, the State Bank of Pakistan purchased $575 million from the open market to the meet the quarterly reserves accumulation target. In case of missing the deadline, the SBP will have to intervene in the market, which could again bring the rupee-dollar parity that recently stabilised below Rs100 to a dollar on back of the $1.5 billion windfall from Saudi Arabia.
The SBP has kept the interest rate unchanged at 10% in the last monetary policy and the IMF’s condition suggests that it will go up again, if the Privatisation Commission fails.
The IMF said risks remain high on the reserve accumulation strategy as it depends on aggressive action by the SBP and on an ambitious profile on government debt and privatization inflows.
Published in The Express Tribune, April 3rd, 2014.
As Pakistan enters the home stretch of the financial year, the government is left with only three months to deliver on the promise of raising $1.5 billion through privatisation to build foreign exchange reserves and meet budget deficit target, or be ready to increase the interest rates.
The Privatisation Board held a meeting on Wednesday and agreed on aggressive time lines to sell the government’s stakes in Oil and Gas Development Company Limited, Pakistan Petroleum Limited and United Bank Limited before end of June. The plan is to raise $1.5 billion to meet the June-end target, that involves an increase in the official reserves to over $9 billion and reduction in the gap between national income and expenditures to achieve the budget deficit target of 5.8% of the GDP.
“The plan is aggressive and challenging and risks are high but it’s not my style to give up”, said Muhammad Zubair, chairman of the Privatisation Commission while talking to The Express Tribune.
But Zubair said he was also dependent on other stakeholders including transaction-specific financial advisors for full delivery of the plan.
The reality is that the Privatisation Commission has so far missed all its deadlines. Under its $6.7 billion three-year bailout package, the International Monetary Fund (IMF) had asked Pakistan to hire a financial adviser by December 2013 who would prepare a plan to sell 26% shares of Pakistan Airlines. The deadline was missed and extended to March 2013, which has again been missed.
The government has blamed the All Pakistan Newspaper Society for the delay, as the APNS blocked all official advertisements after the government failed to clear the advertisement bills, which also created financial problems for media houses. The APNS temporarily lifted the ban last month, allowing the government to advertise.
Zubair said that both Prime Minister Nawaz Sharif and Finance Minister Ishaq Dar wanted quick progress in the existing conditions of 11 state-owned entities, already cleared for privatisation and capital market transactions.
The Privatisation Commission believes that by April 16 the FA for PIA and other entities that have been approved for privatisation will be hired.
But officials from both the IMF and Asian Development Bank think that the $1.5 billion privatisation target seems difficult to achieve.
The ADB’s country director to Pakistan, Werner Liepach, said on Tuesday that the likely delay in privatisation proceeds could pose a risk to budget deficit target.
In its latest report, which was released last week, the IMF noted that Pakistan was still committed to their original timeline for capital market transactions, but a delay in hiring advisers would leave them with a high risk that the first transactions would slip beyond end-June. The failure of meeting this target could require compensatory measures to reach the reserves accumulation target, said the IMF.
Currently, the gross reserves held by SBP are just $4.4 billion including $1.5 billion Saudi Arabia aid.
Cost of time overruns
“(IMF) staff stressed that the authorities (Pakistan) should stand ready to take additional action, including increased foreign exchanges purchases and further tightening of monetary policy if there are delays in anticipated inflows (e.g., from privatizations),” according to the IMF report.
The $1.5 billion is part of the $5.8 billion foreign inflows that Pakistan has budgeted for the current fiscal year 2013-14.
In the last five months alone, the State Bank of Pakistan purchased $575 million from the open market to the meet the quarterly reserves accumulation target. In case of missing the deadline, the SBP will have to intervene in the market, which could again bring the rupee-dollar parity that recently stabilised below Rs100 to a dollar on back of the $1.5 billion windfall from Saudi Arabia.
The SBP has kept the interest rate unchanged at 10% in the last monetary policy and the IMF’s condition suggests that it will go up again, if the Privatisation Commission fails.
The IMF said risks remain high on the reserve accumulation strategy as it depends on aggressive action by the SBP and on an ambitious profile on government debt and privatization inflows.
Published in The Express Tribune, April 3rd, 2014.