Privatisation Of SOEs

For a long time, State-Owned Enterprises (SOEs) have been the recipients of large annual budgeted injections in Pakistan and successive governments have pledged to either restructure these entities to make them profitable, or to sell them right away through offering shares of the company on the stock market or to a strategic buyer. None of these promises were ever realised however, and today the situation is worse, with burgeoning budgetary subsidies and bail-out packages that we can ill-afford. It is therefore encouraging to hear the new Finance Minister underscore the need to accelerate the process of privatising loss-making SOEs.
Miftah Ismail promised full support when it comes to addressing all pending issues and hurdles in the way of privatising these problematic entities. Under the previous government, the privatisation programme progressed at a very slow place due to lengthy processes and the onset of the pandemic. The PTI government only completed the privatisation of two public sector entities and the new government plans on carrying forward that process as the privatisation of several entities is in advanced stages.
This announcement is encouraging and the government should be commended for fast-tracking this process. However, instead of focusing solely on smaller entities, we will need to address the issue of major loss-making enterprises such as PIA and steel mills.
According to the World Bank, the total liabilities of loss-making SOEs is in excess of 8 percent of GDP. The top ten loss-makers, which include Pakistan International Airlines (PIA), Pakistan Railways, power companies and the National Highway Authority, account for around 90 percent of the total losses each year. Despite attempts by successive governments to turn them around, they have failed in making these entities even break even. In fact, even in the case of profit-making SOEs such as the oil and gas sectors, the operational efficiency and profitability compare poorly to their peer group in the private sector globally.
While the intent of restructuring and reforming SOEs is commendable in principle, history has shown that such attempts do not garner much success despite the best of intentions. Instead, studies reveal that privatisation leads to increased productivity of companies that were previously under state control. This has also been true in Pakistan with the privatisation of state-owned banks that are now profitable as they are driven by shareholder imperatives to maximise returns. Even globally, there has been a shift away from SOEs, even in most socialist countries. We can no longer afford to continue funding the large losses that the sector accumulates annually. Hence, rather than trying to turn around these suffering entities, the government should focus more on providing a conducive environment to privatise them rapidly.

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