Bailout plans

Will a new bailout package for public-sector enterprises be able to put them back on track? The last word from the government was last week when it told the IMF that it was planning to create a wealth fund for public-sector enterprises, which would improve their performance before they are privatised. We have already questioned the logic of pouring billions more into state enterprises only to sell them off.

The logic that the government will get a better price does not bear out in Pakistan’s own experience with privatisation. Moreover, as with the PTCL sale, why would the government want to dispose of an asset that is making a profit? Whatever the merits of this question might be, the government seems to have gone ahead with part one of this plan. On Monday, the Economic Coordination Committee approved a Rs53 billion bailout package for PIA and power companies to ensure their survival. The package itself does not appear to be part of a revamp of the public-sector enterprises, but more of a lifeline to avoid collapse in line with earlier such bailouts. The money will help the aviation and power sectors to avert their ongoing liquidity crisis.

In the case of PIA, it has been hurt badly due to currency depreciation. The airline is in a ‘default-like situation’ with respect to its creditors after it suffered a Rs2.9 billion shortfall on a government guarantee due to a difference in exchange rate as well as another $31 million shortage on an additional sovereign guarantee. The bailout will cover the gap in finance as well as offering another Rs10 billion to meet debt-servicing obligations to creditors. The trouble is that the funding will be in place to cover two months, when it could be likely that a similar bailout is needed, especially if the government agrees to depreciate its currency more. This has come with instructions to improve its business performance, but the latter is not likely for an airline barely scraping to make ends meet. A workable business plan will involve significant investment. Around Rs36 billion of the finance will be given to the power sector, via the Power Holding Company. This is also to cover accumulated debt owed to fuel suppliers and other creditors. The sheer size of the bailouts suggest that a plan to improve the performance of bleeding public-sector enterprises will involve investing hundreds of billions. Half measures will not be enough to bring these enterprises back on track.