The PTI government doled out lavish concession package of Rs1.7 trillion tax exemptions to the elite class, leaving the economy with little breathing space. Now Pakistan is running from pillar to post to find some financial resources to avert default. Pakistan has approached all friends but without much success. Our friends have advised us to first swallow IMF’s the bitter pill — elimination of subsidies and increase in revenue and taxes. Pakistan is following the advice and is trying to enhance tax rate, and the 2022-2023 budget gives us a blueprint of the intensions of government. It is not a first; it has been happening for the four decades to no avail. Thus, government must have to ponder, why this formula is not working. Economic rationale suggests that tax revenue alone cannot help Pakistan. Rather, increasing taxes, especially on essential commodities and salaried class, will further complicate the situation. On other hand, if government increase taxes on cooperate sector beyond a certain level, then cooperate sector will try to fly out and government will have to revert to raising taxes on the essentials.
In this context, the government should not only rely on tax revenues, but also look for non-tax revenue and State Owned Repertories (SOEs) provides excellent opportunity. SOEs can help Pakistan on multiple accounts. First, SOEs along agriculture is the only option, which can give immediate relief to economy and pave way for the sustainable development. As SOEs are already there, there is no need to build new infrastructure. For example, Pakistan Steel has immense potential to give immediate boost to economy due to boom in construction sector, development of SEZs and ML-1 railway line. Pakistan can attract investment instantly by forging partnerships with private sector and foreign companies. Chinese companies have already shown interest. Telecom sector can also help and lead the way for rapid revival of economy due to growth in e-commerce and digitalisation of economy. Second, it will provide required financial resources to overcome the challenge of deficit. Third, it will help create livelihood opportunities for people, which will boost domestic consumption and tax revenue.
Unfortunately, Pakistan is moving in the opposite direction. The successive governments of Pakistan have adopted the policy to undermine and malign the SOEs. They have convinced people and media that SOEs are source of waste and plundering of money. Yes, SOEs at this point of time present bleak picture, but the other side of the story is not told. Who is responsible for this disaster? Who stuffed SOEs with incompetent and unskilled political workers? How the merit was killed to benefit their cronies. History of SOEs shows that governments, either democratic or dictatorship, continued to use SOEs to attract votes and exploit for their own financial benefits. They never tried to run SOEs on business principles. They also do not state why private sector wants to buy loss-making entities? Because they do not want to tell real story. They know that SOEs can be leading source of revenue and economic revival, but they hide it.
Globally, we can find a number of success stories where SOEs played leading role in paving the way for sustainable development. For example, SOEs helped China to transform from a poverty-ridden country (82% poverty 1980) to the second biggest economy of the world with zero poverty. Despite, huge success and introduction of private sector, still SOEs are major source of economy and in 2021 data, SOEs’ contribution to China’s GDP was 32 percent (almost US$ 6 trillion).
Malaysia is another interesting case study, which has relevance for Pakistan. As, Pakistan and Malaysia both have western style of democracies, which is different from the China’s Whole Process Democracy. Malaysia in 1960s and 1970s was facing the same problems as Pakistan is facing today. Malaysia adopted new economic policy and started to use SOEs to create surplus and capital formation. They used best available brains from the market and adopted innovative policy to create linkages with private sector and managers. It helped Malaysia to come out of crisis and now Malaysia is one of the leading economies of the world.
The analysis of Malaysian model highlights a few lessons for Pakistan. First, Malaysia adopted innovative and merit-based policy. They engaged leading experts of management and let them manage the companies. Second, they kept on reforming the system as needed. Third, they compelled companies to compete at national and international level. Fourth, they developed key performance indicators (KPIs) for financial, economic and production management. Fifth, they ran SOEs on economic and business principles and there was no political interference or recruitment.
Thus, SOEs’ sellout is no solution. The real solution lies in reviving and running SOEs on business principles. For that purpose, Pakistan needs to introduce KPIs and employ the talented people. Retired personnel people on deputation should be removed because they don’t have any ambitions, except to making money. Let the young and dynamic professionals lead the SOEs, who have ambitions and skills to overcome challenges.