FeaturedNationalVolume 14 Issue # 02

White elephants of Pakistan’s economy

Public sector enterprises (PSEs) are a big drain on the national economy. According to new data released by the State Bank of Pakistan, the mounting debt and liabilities of the Public Sector Entities (PSEs) touched Rs1.3 trillion during the fiscal year 2018.The previous PML-N government failed to bring any reforms in the PSEs including Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM) which are burdened with huge loans.

The debt and liabilities of PSEs had gone up by over 23.5 percent on annual basis, and was recorded at Rs1.05 trillion by June last year. Liabilities alone had swelled to Rs231.3 billion by June 2018. Similarly, the debt of the PSEs had increased to Rs1068.2 billion at the end of June 2018 as compared to Rs822.8 billion a year ago, showing an increase of almost 30 percent.

According to the official figures, PIA’s debt has increased to Rs146 billion at the end of June 2018, as compared to Rs122.4 billion of a year ago. The PIA still needs billions of rupees to meet its expenses as well as to get new airplanes on lease. The debt of Pakistan Steel Mills remained at Rs43.2 billion. The PSM management is not in position to pay the salaries to its employees. The federal government is paying salaries to the PSM’s workers from its own resources. The Water and Power Development Authority (Wapda) recorded an increase of over Rs49.8 billion in one year, as its debt increased to Rs131.2 billion at the end of June 2018, which was Rs81.4 billion a year ago. The Oil and Gas Development Corporation (OGDC)’s debt was recorded at Rs4.3 billion by end of June 2018.The Pakistan Railways, too, suffered a loss of 40 billion rupees in the fiscal year ending June, 2018

All these entities were profitable at some point in time, having enjoyed a monopoly or limited competition in their respective sectors, for decades. But later they became a liability for the country. The reason for the reversal is that although they are commercial entities meant to make a profit, these entities are run like any other government department. Almost all of them are run by some government ministry making them attractive targets for politicians to milk them through various tactics.

It is no secret that politicians often fill these entities with political appointments from their own constituencies. These appointees lack the required skills and are often totally redundant, only adding to the salary and pension obligations of the respective organisations, besides being involved in corruption. They also remain active politically and often form powerful linkages inside these entities, blocking the way of any reform as we have seen in the case of PIA and PSM where multiple attempts to privatize them have failed because of stiff resistance from employees and their political backers.

In today’s business environment where critical decisions have to be made very quickly one cannot put their files in a bureaucratic process and wait for months to get approval from secretaries and ministers, who work at a snail’s pace. Moreover, they are not technically equipped nor do they have relevant qualifications and experience to make such decisions. PIA has to get approval from the prime minister to buy new planes. Where on earth does this happens? All successful airlines around the world make their own fleet decisions, purely based on business needs without the involvement of politicians. There are many airlines, railways and other organisations around the world which are hugely profitable despite belonging wholly, or partially, to the public sector.

Needless to say, all public sector commercial organisations in Pakistan can become profitable only if there is a political will to do the needful. The first step towards this will be the de-politicisation of these entities. The state needs to understand that commercial enterprises cannot be run like other government departments and there is no room for political meddling in business organizations. In today’s world, businesses are run by graduates of top-ranked business, engineering and technology schools and not by traditional civil servants. Independent entities will be able to get talented people by paying them in comparison with the private sector and tying their employment benefits with their performance.

A CEO who is an industry leader in commercial aviation and is offered pay and perks in line with the international aviation industry benchmarks can surely turn the PIA around, if given necessary powers to make decisions purely based on the business needs of the airline. Besides running their core operations smoothly and profitably these independent entities will be able to utilize their huge resources to the optimum. For example, Pakistan Post owns prime land in almost all cities around the country. A single high rise building built on one of its plots, say in Lahore or Karachi, can give it millions in rent every year. Similarly, all other organisations have an enormous amount of resources, including land and other assets, lying unutilised.

The previous PML-N government had promised but did not privatise the loss-making PSEs including PIA, Pakistan Steel Mills and power sector companies in the last five years. Now, the PTI has vowed to establish a “wealth fund” to run the PSEs including PIA, PSM and others. These PSEs would be run by appointing and empowering non-political and autonomous boards instead of concerned ministries. The idea of a wealth fund is modelled on the concept of Khazanah in Malaysia, which is a sovereign wealth fund of the government. It holds and manages selected commercial assets of the government and undertakes strategic investments on behalf of the nation. Nevertheless, the new government would have to create fiscal space to clear the debt of PIA and PSM.