If Finance Minister Asad Umar would have his way, Pakistan would soon stand shoulder to shoulder with Malaysia, Qatar and all other countries that boast wealth funds. For a state that suffers from weak revenues and weaker dollar inflows, the successful setting up of a wealth fund would indeed be something to boast about. A failure, however, would spill forth torrents of embarrassment, dejection, and critique.
But Mr. Umar seems sure. Even before he formally joined politics, he had been rather vocal about his views on governance of public sector enterprises (PSE). Strong and effective independent boards, the Khazana model, East Asian developmental model and other related ideas are among his ideals of PSE governance.
Of course, he is not alone. Even eighth-grade students have been sometimes found passionately talking about how Korea turned around its economy by simply following Pakistan’s five-year plan. Few, if any, bother to take a step back, and wonder if those models can work in Pakistan, given the social, political, historical and cultural differences.
Do economies work outside the womb of politics, history or culture? Nay! But macroeconomists and public governance specialists resist thinking outside their model arguing often that history and culture are slippery ropes. Well, that’s just intellectual laziness.
While one wishes Mr. Umar the best of luck, one cannot help wondering out aloud the so many questions for which even the incumbent cabinet is not particularly clear about. For instance, where would the holding company – the company that will control the wealth fund and all the companies under it – be parked? Would it be placed under the ministry of finance or a separate entity reporting to the cabinet? Either way the person in charge of that could be one of the most powerful persons in this country.
Likewise, will that company take liabilities on books as well or only assets? If it takes the complete balance sheets, it may as well be called a loss fund instead of wealth fund. Who will staff those state-owned companies? People from PM Khan’s 200-member dream team and will they even join the team considering the accountability overdrive that plucks away motivation and risk-taking spirits from public sector managers.
Let’s assume the government is able to put together a dream team in place and all the strategic management slots are staffed with top talent. Then what? Can that top management run the machinery with the same people who have helped run those ships aground? If not, then does the government have the fiscal capacity to give all those people golden handshakes, or will it train and absorb them? Remember this is a country where proverbially speaking all it takes 20 nurses to come out on the streets until the state kneels.
In Malaysia, the source of Mr. Umar’s inspiration, Khazana’s management was given the autonomy to run the businesses which were open to market forces in their respective business sectors. Is the PTI government willing to subject the state-run companies to the market forces? Can public sector managers gain commercial acumen overnight? And as Nadeem ul-Haq flagged at a talk organised by Pakistan Business Council in Karachi this week, can markets really work when there are government sector players in the room or private sector players protected by sovereign guarantees?
Instead of flirting with a disaster, the government should focus on ensuring that public sector enterprises start following their 2013 corporate governance guidelines, strengthen the Privatisation Commission, including its research wing, and simply exit from the market over the next five years.
The turnaround is unlikely to be successful without revisions in market structures with separation of regulatory and operational roles, competitive assessments for various sectors in question, mitigation framework for labour related issues, and fixing other ancillary overarching themes – and all of these are time taking exercises.
The stories of privatised banks, PTCL, and K-Electric are testimony that meaningful sustainable turnarounds (not quick fix window dressing solutions) take time – five to seven years to say the least; and that is if everything goes smooth, which is a tall assumption to hold in the public sector.
Going down the overly romanticized path of turning around the state-owned enterprises is akin to opening another war front when the ruling party already has enough wars on its plate: balance-of-payment crises, taxation, education, health, ease of doing business (beyond World Bank rankings), weak savings & investment and what not.
The PTI will be lucky even if it wins even just a few of them, giving Pakistan’s sinking economy and competitive politics. Is it not then wise to lessen the burden when the boat is sinking? Granted the PTI has committed a lot of passionate dialogues to the promise of public sector reforms. But we are also told that ‘leaders’ know when to take a U-turn.
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