Key Takeaways
- Net fiscal inflows from State-Owned Enterprises (SOEs) dropped significantly in the first half of the last fiscal year.
- Critics argue that privatization of PIA has led to better management and reduced government liabilities.
- The Privatization Commission is advised to adhere to established timelines to reduce SOE losses.
The financial health of State-Owned Enterprises (SOEs) in Pakistan is reportedly deteriorating, with net fiscal inflows dropping to one-tenth in the first half of the last fiscal year. This decline has raised concerns among policymakers and economists.
According to the Business Recorder, historically low oil prices have kept profits depressed across the oil and gas supply chain. With prices now on the rise, a growing circular debt threatens to further erode these gains, making the situation more challenging for SOEs.
Efforts to achieve efficiency in SOEs have proven difficult, as they continue to drain fiscal resources, ultimately falling on taxpayers through measures like the petroleum levy. The government is advised to reduce its footprint in commercial ventures.
The government's first significant success in recent years was the privatization of Pakistan International Airlines (PIA). Critics argue that PIA Holding Company's ongoing losses continue, but had PIA remained under government control, the rise in oil prices would have likely resulted in even worse operational losses.
With management now in private hands, the government is exonerated from these liabilities. To further cut its losses, the government should expedite its privatization program. Recent changes to the judicial system have improved investor confidence, particularly among foreign investors.
The success of the privatization of FESCO, the first power distribution company to be privatized, is seen as a positive sign. The Privatization Commission is advised to adhere to established timelines and avoid delays, as was the case with PIA.
The next SOEs in line for privatization are IESCO and GEPCO. Once these companies are turned around, they may start paying taxes to the government and creating jobs in the private sector. New sectors might also open up for private enterprise, with increased efficiencies having spillover effects across the economy.
The key to reducing losses from SOEs lies in accelerating deregulation and privatization. The government is urged to take decisive action to ensure the success of these initiatives.
