Loss-making public sector enterprises incur Rs1.2 trillion in losses

ISLAMABAD: Loss-making public sector enterprises (PSEs) have so far raked in more than Rs1.2 trillion in losses, equivalent to four percent of GDP, IMF said on Thursday, underscoring an ‘urgency’ for their restructuring to ease burden on budgetary resources.

“Privatisation and restructuring of key loss-making PSEs have been largely on hold,” International Monetary Fund (IMF) said in its first post program monitoring report. “The combined accumulated losses by these PSEs now exceed PRs 1.2 trillion (4 percent of GDP), which could eventually lead to sizable demand for budgetary resources.”

The fund said financial losses by the state-owned Pakistan International Airlines and Pakistan Steel Mills have continued to accrue, while the accumulation of new payment arrears of power distribution companies — which was brought to near zero at end of the fiscal year of 2015/16 — has resumed, reaching Rs193 billion (0.5 percent of GDP) since July 2016, with an accumulated stock of such arrears of Rs514 billion (1.5 percent of GDP) by December-end last year.

“In addition, inter-agency arrears in the gas sector, although still low, have been rising, reflecting limitations in the current cross-subsidisation arrangement between the two publicly-owned gas companies and delays in updating gas tariffs,” it added.

IMF urged the government to complete the unfinished agenda of restructuring and/or privatising the loss-making PSEs. While recognising the difficulties of making substantive progress in this area during the remaining term of the current government, it called for continuation “in the necessary preparatory work to enable swift progress once substantive reforms become feasible”.

“Alongside, efforts to reduce technical and distribution losses in the power and gas sectors, including by stricter enforcement of the ‘Gas Theft and Recovery Act’ are needed to contain arrears,” it added.

The fund supported the government’s plan to revisit the current cross-subsidisation arrangements and notify higher tariffs in the gas sector to ensure adequate cost recovery and revised electricity tariffs, which it said would help contain the buildup of power sector arrears.

IMF also advised the government to consider additional electricity surcharges to facilitate cost recovery until the underlying structural issues are tackled.

The fund stressed the need for efforts by the government in the pre-election period to keep up growth in tax revenue, which rose 12.9 percent of GDP from 12.5 percent.

“Over the medium term, quasi-fiscal losses and arrears by PSEs are expected to persist and the fiscal deficit will likely remain elevated, at around 5.8 percent of GDP,

as growing interest expenditure and PSE’s subsidy requirements would be counterbalanced by improvements in revenue collection,” it said. “The pre-election period could pose significant risks to maintaining fiscal discipline.”