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April 27, 2018

Negligence and complicity


April 27, 2018

While some major state-owned enterprises (SOEs), such as PIA, Pakistan Railways and the Pakistan Steel Mills, have been making losses for a couple of decades, the rot had not hit other SOEs until now. According to the latest reports, almost 200 SOEs have turned net profits into net losses. Questions must be asked about the fiscal management of the PML-N government, which has led to such a stark downturn in the performance of state-sector organisations that have been doing well. The story of the downfall of the SOEs is one of both negligence and complicity. Integral to the state-led development agenda of the 1950s and 1960s, SOEs played a major role as agents of development and providers of employment. Starting in the 1980s, there was a concerted effort, based on World Bank and IMF dictates, to present them as a burden on the fiscal health of the country. Through the introduction of so-called ‘market-friendly’ reforms, functional state-sector monopolies over key services were presented as major financial burdens. This logic translated into disinvestment from key enterprises, which brought in the rot that these organisations face today. There is little goodwill left for Pakistan’s national air carrier, its railways, its energy sector or its industrial arms.

This has made it easier to push SOEs, which were still turning a net profit until last year, into a net loss. It is unlikely that such a downturn in performance under their watch will concern Pakistan’s economic managers. The commitment to privatisation of SOEs is now almost four decades old amongst those in charge of fiscal policymaking. The net loss will provide a further justification for a new round of privatisation under external pressure. The official report seems to be so alarming that the Ministry of Finance has been sitting on it for the last two years. Off the record, officials have put the blame on the decision not to increase energy tariffs onto consumers, but, as we have noted before in this space, consumers are not to blame for the government choosing the wrong approach to fixing the power sector. Major issues, including fixing the distribution grid and sorting out circular debt, have been badly mismanaged by those who occupy the highest offices. Disinvestment and deregulation continue to be recipes for disaster for SOEs – and the fiscal health of the state in both the short and medium term. The simple fact that, until now, all 183 SOEs in the country were turning a profit goes against the grain of the prevailing impression that SOEs are ‘bleeding the state.’ Instead it is those that have put them in this state that must be questioned. It seems that the only way forward will be through setting up an independent commission to investigate what seems to be gross fiscal mismanagement by the current government. This will not only protect SOEs from further bleeding, but protect the larger fiscal health of the federation.

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