ISLAMABAD: Higher growth, investment, and job creation will crucially depend on addressing long-standing structural weaknesses including an uneven playing field for state-owned entities (SOEs) and private companies.
This was stated in the staff-level seventh/eighth review report on under the Extended Fund Facility (EFF) for Pakistan released on Friday.
The report highlighted that contingent liabilities from loss-making SOEs not covered by government guarantees continue to represent additional risks to debt sustainability. In financial year 2022, Pakistan recognized contingent liabilities in the context of circular debt worth Rs 434 billion (0.6 percent of GDP). Remaining contingent liabilities include (i) from circular debt (amounting to 2.2 percent of GDP) and (ii) from other loss-making SOEs (assumed to be in the range of 5–6 percent of GDP).
The government is taking steps for enhancing SOEs’ governance, transparency, and efficiency as well as limiting their fiscal risks which included:
The National Assembly adopted the new SOE law in July 2022, which is now awaiting Senate adoption by end September 2022. With the support of the Asian Development Bank (ADB) work on further regulatory reforms will be completed by end December 2022.
The government has selected four SOEs - National Highway Authority, Pakistan Post, Pakistan National Shipping Corporation and Pakistan Broadcasting Corporation (out of about 20 that are still operating under outdated dedicated Acts and thus ad-hoc statutory frameworks) - and will submit to parliament amendments to their Acts to make the new SOE law to help improve their governance.
A Central Monitoring Unit (CMU) within the MoF to improve SOE performance functions and provide better analysis at the aggregate SOE level will be operationalised by January 2023.
Regular and timely audits of key SOEs by Auditor General of Pakistan (AGP) including SSGCL, HESCO, and PESCO are conducted for strengthening the monitoring of SOEs.
While the planned privatization of SOEs could not take place due to heightened uncertainty, the authorities continued to improve governance, transparency, and efficiency while limiting their fiscal risks. The process of strengthening the legal and regulatory frameworks of SOEs is at an advanced stage.
The government has pledged to gradually reduce the footprint of the state in the economy based on the SOE Triage from March 2021 and including the divestment of two LNG-based power plants, one development finance institution, and one small public bank.
Copyright Business Recorder, 2022
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