THE International Monetary Fund (IMF) has been pushing Pakistan to privatize its state-owned enterprises (SOEs) as a condition for financial assistance, citing the need to reduce the fiscal burden and improve economic efficiency. The federal government, driven by the need to reduce fiscal risks and deficits, has identified 24 loss-making SOEs for privatization, including strategic ones like Pakistan International Airlines and Pakistan Steel Mills. Of the 88 commercially operated SOEs, 71 are registered under the Companies Act 2017, while the remaining 17 are governed by special enactments. Additionally, there are 45 non-commercial SOEs, which are primarily non-profit social sector development entities. That only 24 commercial SOEs have been offered for sale to the private sector highlights the resistance from various ministries to include the SOEs under their control on the privatization list, insisting they are too strategic to be privatized.
The Pakistan People’s Party (PPP), a key coalition partner of the government, has likely capitalized on this bureaucratic resistance by expressing strong opposition to the privatization of SOEs. They cite concerns about job losses, decreased public services and loss of national control over key sectors and instead advocate for public-private partnerships. In the realm of economic policy, privatization has often been heralded as a panacea for driving growth, fostering efficiency and enhancing competitiveness. However, the case of Pakistan offers a cautionary tale, revealing the profound and unintended consequences that can arise from defective privatization efforts. While privatization undertaken since the 1990s was expected to be a catalyst for economic development, it has instead exacerbated existing challenges, leading to a convergence of economic and political crises.
The privatization drive in Pakistan was significantly influenced by international financial institutions aiming to foster economic growth and democratic stability. These institutions advocated for a free-market economy, prompting the privatization of state-owned enterprises. The West encouraged less developed democracies like Pakistan to liberalize with IFI support, expecting better fiscal space and living standards. Economic liberalization was essentially linked to grassroots power devolution for equitable growth. However, questionable privatization practices, regulatory inefficiencies and the absence of political accountability have converged to create a perfect storm of economic and political turmoil. One of the most glaring consequences of privatization in Pakistan has been the emergence of powerful monopolies, which have stifled competition, manipulated markets and controlled prices to the detriment of consumers. State-owned enterprises were sold off at prices significantly below market value, leading to the consolidation of economic power in the hands of a select few. The burden of losses incurred by these privatized entities has been squarely shifted onto national treasury, exacerbating the fiscal deficit and deepening economic woes.
Consequently, the privatization process has exacerbated the democratic deficit in Pakistan, with political parties aligning themselves with influential cartels rather than serving the interests of the electorate. This cosy relationship between political elites and economic monopolies has undermined democratic principles and eroded public trust in the political system. The lack of political will to subject private businesses to a regulatory framework that ensures fair competition and transparency has further compounded the issue. The consequences of privatization extend beyond the economic realm and have permeated various sectors, including banking and energy. In the banking sector, profitability surged after privatization, but loans to productive sectors decreased, hampering overall economic growth. Similarly, the energy sector, particularly independent power producers, experienced adverse outcomes, leading to financial crisis and reduced essential services. The privatization of crucial sectors such as education and health has contributed to a disconnect between the state and its citizens, further exacerbating social and economic inequalities.
In response to the fiscal deficit and to enhance fiscal space, the government implemented measures such as the General Sales Tax (GST), which disproportionately burdened the general population while granting tax exemptions and incentives to the elite. This approach not only exacerbated income inequality but also failed to address the structural issues perpetuating economic and political imbalances in the country. Comprehensive tax reforms, wealth redistribution and empowering local governance are essential components of any viable solution. Granting local governments’ greater administrative, financial and political autonomy is imperative for enhancing political accountability and bridging the gap between political parties and the public. Furthermore, Pakistan needs to broaden its tax base, make the tax system more progressive and close tax evasion loopholes to enhance revenue collection. Simultaneously, it is crucial to protect lower-income groups from excessive tax burdens to maintain social equity. The elimination of subsidies and tax benefits that disproportionately favour the wealthy is essential, with redirected resources aimed at social programs, infrastructure development and poverty alleviation. By addressing the root causes of economic and political imbalances through tax reforms, wealth redistribution and empowering local governance, Pakistan can strive towards a more equitable and competitive economic environment that serves the interests of the entire population. Only through concerted efforts to rectify past mistakes can Pakistan pave the way for sustainable economic growth and democratic stability in the years to come.
—The writer is a political analyst, based in Islamabad.
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