Pakistan struggles to privatize state-owned entities as losses mount to trillions of rupees

ISLAMABAD: The Pakistan government said on Saturday it was struggling to resolve all pending issues to expedite the privatization of loss-making state-owned entities (SOEs), as their cumulative losses have soared into trillions of rupees, challenging the country’s ability to sustain them amid a financial crunch.
Pakistan has identified 25 public sector enterprises for privatization, including the flagship carrier Pakistan International Airlines (PIA), banks, hotels and power generation and distribution companies. However, the country’s progress in privatization has been stalled for decades due to political inertia and various challenges, including legal, licensing and ownership issues.
In a recent push for privatization, aiming to avert a macroeconomic crisis, Pakistan agreed in June 2023 to reform its loss-making SOEs as part of a deal with the International Monetary Fund (IMF) for a $3 billion bailout package.
The government resolved to privatize PIA shortly after finalizing the IMF agreement.
“The political will of a government matters in privatization of the public sector enterprises, and this time the government is keenly focusing on the privatization as the accumulative losses are in trillions of rupees now,” Dr. Ahsan Ishaq, a spokesperson for Ministry of Privatization, told Arab News.
Official data reveal there are 88 commercially operated state-owned enterprises (SOEs) in Pakistan, with their collective losses reaching Rs730.258 billion ($2.61 billion) in the fiscal year 2022.
The top ten loss-making entities, including PIA with Rs97.5 billion, the National Highways Authority at Rs168.5 billion and the Peshawar Electric Supply Company Limited with Rs102.2 billion, accounted for a cumulative loss of Rs650.197 billion ($2.33 billion).
In contrast, the remaining enterprises reported combined losses of Rs80 billion ($286 million) in the same fiscal year.
Dr. Ishaq disclosed that PIA’s cumulative losses alone have surpassed Rs800 billion ($2.86 billion), with the total asset valuation of the airline standing at approximately Rs160 billion ($572 million).
“As part of the privatization, currently the work is underway on bifurcation of the PIA into two entities and once this is completed, the expression of interest will be issued,” he said, adding the Privatization Commission was currently focusing on only three entities including the PIA, First Women Bank and House Building Finance Company (HBFC).
“There are multiple legal, licensing and ownership issues of the entities on the privatization list that keep hampering the smooth transaction,” he said, adding that political and economic instability in the country were also impeding the privatization process.
“We may not get the best offers [for the entities] from potential buyers, but we can’t afford to linger on with the multibillion-dollar losses of these enterprises,” he said.
He said the privatization of the PIA, HBFC and First Women Bank was at the advanced stage, and “the successful transaction of these entities may help boost confidence of the government and investors for other enterprises as well.”
“The UAE [United Arab Emirates] government has shown interest for a G2G [Government-to-Government] transaction of the First Women Bank, and hopefully this will materialize in the coming months,” he said.
Economists said it was heartening that almost all stakeholders were on the same page after decades of foot dragging over the privatization of loss-making entities, though they warned there was still a long way to go.
“It is yet to be seen as to what concessions the government would offer to buyers especially in regulations of the energy companies to make them attractive for privatization,” Ali Khizar, a senior economist, said in a conversation with Arab News.
He said successive governments had been striving to privatize the loss-making enterprises since 1992, but the process was stalled either by the local courts or opposition parties.
“The government should work on the economic and political stability to fetch good offers from buyers,” he suggested, pointing out that next IMF program could also be crucial in terms of privatization of Pakistan’s public sector enterprises.
“If we get a push from the IMF in the next program, the process of privatization could be expedited to reduce the losses,” he said.
Federal Minister for Finance and Revenues Muhammad Aurangzeb said on Tuesday Pakistan would seek a “large and long program” from the IMF under the Extended Fund Facility to overcome the macroeconomic challenges.
Ahsan Mehanti, managing-director and CEO of Arif Habib Commodities, said the need of the hour was effective decision-making to either improve management of the ailing SOEs or offload them to get rid of the enormous losses.
“This government’s privatization resolve is a silver lining, but timely and effective decisions are required to proceed with the process,” he told Arab News. “This is the best time to invite bids and get the loss-making enterprises offloaded as we can’t continue like this anymore.”