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Tuesday June 18, 2024

Privatisation drive

By Mansoor Ahmad
May 25, 2024
This picture released on February 9, 2023, shows Pakistan International Airlines (PIA) aircraft parked inside a shade in Nur Khan Engineering Complex in Islamabad. — X/@PIA
This picture released on February 9, 2023, shows Pakistan International Airlines (PIA) aircraft parked inside a shade in Nur Khan Engineering Complex in Islamabad. — X/@PIA

LAHORE: An economic turnaround is still possible if prudent and proven measures are introduced, adopting merit-based good governance practices, as the current economic turmoil in the country is more due to mismanagement and corruption.

Some immediate, sensible corrective measures could provide some breathing space for the economy. After removing management inefficiencies, the gap between the cost of production and power tariff could be plugged. By cutting government expenses to realistic levels, the fiscal deficit could be reduced substantially.

The government needs to hand over the public sector power companies to the private sector through a transparent process. The private sector has the ability to bring back the capacities of public sector plants in all sectors, including power sector plants, to their original rated value and maintain them properly. Huge bleeding in public sector companies like PIA, Railways, and Pakistan Steel is adding to the monetary woes of the government.

Privatizing these entities through a transparent process could immediately provide the government with much-needed breathing space because, besides getting some cash, the state will be spared the burden of financing hundreds of billions of losses that these entities suffer annually. Moreover, there would be no burden on the payroll of employees of these public sector companies. It is unwise to delve into the details of the worth of the assets of public sector entities, as such flawed thinking has continued to add a financial burden on the exchequer.

The most important thing in this regard is the transparency of the privatization process that could withstand judicial review in one hearing. Our rulers must follow the tough stance taken by Margaret Thatcher on privatization during her premiership, despite criticism, but later that privatization policy brought positive results to the UK economy and direct savings to the UK national exchequer.

High interest rates are due to high inflation, but even if interest rates come down, the state has a greater hunger for loans than available in the market. The government is sucking money from the banking system, creating greater demand. The government's appetite for money has to be reduced before interest rates can be brought down.

Investment has remained elusive in Pakistan. Instead of arranging specific investment through state guarantees, the government should raise the governance bar with merit and transparency reigning supreme. If this is done, the government would have no difficulty in attracting investment. priority sector where investment should be made is infrastructure, as it is a globally proven fact that one percent investment in infrastructure increases GDP growth by 1.8 percent; while one infrastructure job creates 15 jobs in the supply chain, both upstream and downstream.

Instead of indiscriminate subsidies, the government should use available resources for social sector development, giving priority to education up to secondary school and skill-imparting institutes. Subsidies undermine the competitive process as they interfere with market signals, and where provided on inputs, lead to inefficient allocations as perceived prices deviate from cost-based prices. Credible research has shown that the limitation of wasteful subsidies attracts foreign direct investment. A recent example is that of Eastern European countries that benefited from FDI after they eliminated subsidies.