Transparency only way

LAHORE: Public sector companies like PIA and Railways, along with the footprint of inefficient public sector in the power system, are compounding the monetary woes of the government.

Economists wonder what is stopping the government from privatising these entities. It is unwise to go into the details of the worth of the assets of public sector entities. Such flawed thinking would go on adding burden on the exchequer.

Privatisation must be done transparently based on the productivity of the technology available in the public sector company and not on the value of its real estate. To discourage the new owners from converting the real estate into housing colonies or commercial centres, a ban can be imposed on the new owner in this regard, stipulating that the land can only be used to upgrade technology and increase production capacity.

Moreover from the privatisation proceeds, the government must look after the surplus employees who would have to leave after the selloff. Let the private sector operate without any pressure from unionised workers.

Over Rs2 trillion loss due to inefficiencies and thefts in public sector entities has crowded out resources for infrastructure investment. Our planners must revisit the tough stance taken by Margret Thatcher on privatisation as prime minister of the UK.

She showed her steely resolve despite criticism. That privatisation policy brought positive results to the UK economy and direct savings to the UK national exchequer.

Transparent privatisation in the past has also yielded excellent results in Pakistan. When MCB was privatised in 1991, it paid only Rs150 million income tax and in the first six months of 2022 it paid Rs21.1 billion income tax.

HBL paid Rs1.45 billion yearly income tax before privatisation, while in the first six months of 2022 it deposited Rs22.5 billion as income tax.

Investment in Pakistan is hostage to non-transparent policies. It is bad governance. Once the governance bar goes up with merit and transparency reigning supreme, the government would have no difficulty in attracting investment.

The priority sector where the investment should be made is infrastructure, as it is a globally proven fact that one percent investment in infrastructure increases the GDP growth by 1.8 percent; while one job in an infrastructure project creates 15 jobs in the supply chain both upstream and downstream.

Once governance level and transparency is improved, investment can be arranged through foreign direct investment (FDI) by using investor friendly policies and prudent regulations. We have seen huge investments in India and China made by their overseas nationals.

Infrastructure funds should be sought from multilateral development banks like the World Bank, Asian Development Bank and International Monetary Fund. Strategic alliances with friendly countries like China, Turkey and UAE could be another source of funding.

Encouraging build, own, and transfer based investment through joint ventures and public private partnership would be available in large amounts. The government must opt out of doing business and instead act as a facilitator for businesses.

Lowering interest rates at this juncture is not possible. It is simply a matter of demand and supply. The government is sucking money from the banking system creating greater demand.

Moreover, the non-performing loans that are accumulating due to continued economic recession also carry a cost. Government’s appetite for money would reduce if PSEs and power sector companies are privatised.