State-owned entities (SOEs) continue to be a source of serious concern to not only the Khan administration, like its predecessors, but also to international financial institutions engaged in Pakistan through programme/budget support and/or project financing.
The 6 billion dollar International Monetary Fund (IMF) programme, has like its predecessors, an entire paragraph dedicated to the on ground situation with respect to the SOEs. Referred to as a rise in "quasi fiscal losses" representing a significant fiscal risk the Fund notes that "following several years of steady decline in the flow of circular debt in the power sector new arrears were accumulated over fiscal years 2018 and 2019 reaching close to 800 billion rupees (around 2 percent of GDP);" about the same amount of power sector debt is parked under the Power Holding Company Limited. The Fund notes that "delays in adjusting tariffs, reversal of policies - such as revenue based load shedding - and the non-payment of implicit subsidies by the government have been the main contributors to the increase in arrears. As a result the stock of circular debt stood at 4 percent of GDP as of March 2019" - so much for claims by Omer Ayub, the Federal Energy Minister, that governance in the power sector has improved dramatically since he was given the portfolio on 11 September 2018, a claim endorsed by Prime Minister Imran Khan through several congratulatory tweets.
While the power sector circular debt has remained a major issue during the past two administrations as well as the incumbent yet as per the IMF "beyond the energy sector, losses in the three largest SOEs (Pakistan International Airlines, Pakistan Steel Mills and Pakistan Railways) have continued to accumulate, now totaling over 2 percent of GDP." In other words, around 6 percent of GDP is accounted for by SOE losses due to appallingly poor performance partly due to not following merit in appointments of senior staff and partly due to overstaffing to accommodate political workers of the ruling party.
The State Bank of Pakistan (SBP) in its special second quarterly report 2019 gave the following data: aggregate assets of SOEs rose by 11.3 percent between 2013 and 2016 and stood at 110.3 billion dollars (11.5 trillion rupees) spread across 197 entities, equivalent to around 40 percent of Pakistan's GDP with energy sector predominating; no doubt this data had the economic team managers salivating; and (ii) over all SOE sector posted a net profit of 410 billion rupees between 2013 and 2015 which transformed into net loss of 44.8 billion rupees in 2016 when "the drag from loss making entities increased significantly and more than offset the earnings of profitable entities (a sharp fall in global crude prices had led to a decline in revenues of oil and gas exploratory firms)." The SBP report cited "Federal Footprint - SOE annual report" in which it was stated that the SOE support mechanism includes subsidies, loans and grants provided by the centre as well as guarantees as they represent contingent liabilities. Thus while the IMF focused on 'quasi fiscal losses' which included subsidies and loans (including federal guarantees) the SBP report focused on total assets and net losses.
In acknowledgement of the SOEs large quasi fiscal losses with corrective policies still pending (this period includes Dr Hafeez Sheikh's three-year long previous tenure) Prime Minister Imran Khan appointed Dr Ishrat Husain as Advisor to the PM on Institutional Reforms and Austerity on 4 September 2018, two weeks after he took oath, and tasked him to prepare a blueprint for reforming the SOEs.
The recommendations of the task force shared with the public are no different from what is contained in several previous studies that are gathering dust in several ministries and include: (i) open, transparent, merit-based recruitment to all levels and grades of public services with regional representation as laid down in the constitution; (ii) performance-based promotions and career progression for all public sector employees with compulsory training at post induction, mid-career and senior management levels; (iii) equality of opportunity for career advancements to all employees without preferences or reservations for any particular class; (iv) replacement of the concept of superior services by equality among all cadres and non-cadres of public servants; (v) grant of living wage and compensation package including decent retirement benefits to all civil servants; (vi) e-government, driven by business needs rather than crafted as an elegant technical solution, to be accelerated with the most difficult aspect identified as the training and a change in the culture, attitude and practices; (vii) all laws, rules, regulations, circulars, guidelines issued by any Government Ministry/department/agency should be available in its most up dated version to the general public free of cost in a user-friendly manner on web page and in electronic and print forms at public places; (viii) service standards with timelines for each type of service rendered at the District, Tehsil and Union Council level should be developed, widely disseminated and posted at public places in each department; and (ix) strict observance of security of tenure of office for a specified period of time including secretaries, chief secretaries and chief executives of major corporations and autonomous bodies.
Fourteen months of the PTI government and none of these recommendations has been implemented. Given the scale and extent of the continued mismatch between those appointed and the qualifications and experience required for a specific position, as well as each new federal minister wanting his own team (Hafeez Sheikh dismissed the Secretary Finance soon after he took over the portfolio on 20 April) the recommendation of security of tenure may not be implementable by the current dispensation.
Perhaps to keep itself relevant for a lot longer than was originally envisaged the task force recommended that instead of becoming defunct once the report is finalized (it is unclear how much of the taxpayers money has been used and is being used to sustain the task force) it should adopt an incremental approach by submitting specific recommendations on a particular issue to the cabinet for consideration.
Husain has also publicly talked about the humiliation and harassment of bureaucrats by the National Accountability Bureau (NAB) and Federal Investigation Agency (FIA) - a refrain also taken up periodically by the Prime Minister. However, there is overwhelming evidence that contracts awarded to private sector (with commissions) are not possible without connivance of bureaucrats and this raises questions on whether it is appropriate to bar NAB and FIA from proceeding against bureaucrats. In this context the government has also been unable to legislate barring any particular group from the launch of an inquiry by NAB as such a law, if passed, would be challenged in the courts for being discriminatory.
Some of the reforms agreed with the IMF seem to be much more relevant for a change in SOE and include: (i) jumpstarting the privatization process which one would hope would begin with loss-making units rather than profit-making units though the latter are easier to dispose off; (ii) strengthening the monitoring of SOEs, detailing how the government has exercised its ownership, the impact, if any, on government finances and decide on whether to privatize or liquidate by end September next year; unfortunately those who can afford to buy these units are a handful of rich which Nobel laureate Jo Stiglitz argued may raise "worries about distribution and competition - or even concerns about democratic processes being undermined by excessive concentration of wealth"; (iii) improving SOE transparency with PIA and PSM conducting new audits and a special audit of Pakistan Railways by March 2020 which given the rise in accidents especially the recent one in Rahimyar Khan is urgently required; (iv) enhancing SOE legal framework; and (v) establishing a holding company which has been established since.
To conclude, one would hope that Prime Minister Imran Khan appoints Asad Umar to head the holding company, as he, unlike Hafeez Sheikh, is not only committed to the party's vision with respect to SOEs but also has the necessary experience to undertake this task. Needless to add, if he succeeds then the PTI's economic performance would be viewed very positively in spite of the IMF's upfront conditions that are raising the rate of inflation, lowering productivity and generating unemployment.
Copyright Business Recorder, 2019
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