A seemingly stalled sell-off process

After receiving a briefing from Secretary Privatisation Commission, Prime Minister Imran Khan directed that the process must be completed within the timeline with better inter-ministerial coordination, adding that the sale of all non-profitable entities is in the national interest. The Prime Minister would do well to acknowledge that these directives are at odds with not only the loan agreement signed by his economic team leaders with the International Monetary Fund (IMF) but also his party's earlier commitments with respect to state-owned entities.

The budget 2019-20, a document that was approved by the International Monetary Fund (IMF) as a prior condition, indicated privatisation proceeds of 150 billion rupees during the current year. With the inability of the Federal Board of Revenue (FBR) to meet the grossly unrealistic target of 5.23 trillion rupees, revised downward from the original 5.5 trillion rupees after the first review, the need to generate non-tax revenue was under active consideration by the economic team leaders with the Prime Minister's Adviser on Finance Dr Hafeez Sheikh publicly stating that higher than budgeted privatisation proceeds and State Bank of Pakistan profits would meet the revenue shortfall. During his address to parliament recently, Dr Sheikh pledged that non-tax revenue would generate an additional 1,500 billion rupees in the remaining period of the current year, as unrealistic as the original tax revenue target, and though he did not mention privatisation proceeds as being a major contributor yet it stands to reason that privatisation would have to contribute a lot more than what was budgeted to meet the IMF's second review conditions.

While the IMF is preparing the second review documents which would provide details of what was actually agreed between the IMF and the economic team leaders yet one would hope that the Prime Minister, who recently commended his economic team leaders for convincing the Fund staff that there would be no mini-budget this year, seeks detailed information from his team leaders. Economic compulsions may account for the government's decision to increase reliance on privatisation proceeds, and in turn may account for abandonment of Pakistan Tehrik-i-Insaaf's ideological commitment to set up a Sarmaya Pakistan fund (set up during Asad Umar's tenure as the finance minister) though with grossly inadequate funding but there is little evidence of any progress given that the government in the IMF loan documents claims it is consulting with the Fund to ensure adequate governance and proper safeguards are in place. Be that as it may, the privatisation process cannot be fast tracked as past experience shows as it is invariably followed not only by lengthy litigation but also by crippling strike actions. And finally, with a few wealthy families/corporations able to buy SOEs the charge of selling the family silver at throwaway prices may be as applicable today as it was during previous administrations.

Imran Khan's directives emphasised the sell-off of non-profitable institutions. This indicates the Prime Minister's objective is to reduce the heavy burden on the exchequer of annual budgetary allocations to poorly performing state-owned entities (SOEs); however, he would be well advised to expedite action on three white elephants accounting for the bulk of the annual budgetary support: (i) Pakistan Railways; (ii) Pakistan Steel Mills; and (iii) Pakistan International Airlines. Eighteen months into his administration and little improvement in governance is visible in any of these three entities.

To conclude, while privatisation appears to be the easy solution to meeting the revenue shortfall yet Dr Hafeez Sheikh must surely be aware that it is a policy fraught with legal issues and therefore must not be hurried. There is also a need to sell only after assessing the stream of future revenue in the case of profitable SOEs that privatisation would deprive the government of instead of merely trying to meet the total revenue target agreed with the Fund.