OVER the past decade, government-owned enterprises have been incurring colossal losses, which are a huge burden over the debt-ridden economy of Pakistan. In FY16 the SOEs incurred a significant loss of Rs. 44.8 billion and it further continued to surge up to Rs. 143 billion in FY19. In FY22-23 the loss incurred by these state-owned enterprises proliferated up to Rs. 905 billion which reflected an increase of 23% from the previous fiscal year. These public sector entities of Pakistan have faced losses of Rs. 5.598 trillion over the past 10 years. Is the economy of Pakistan currently at the state to bear such huge losses? SOEs in Pakistan are just posing a negative impact over the GDP and the economic growth of the country.
Enterprises like PIA, National Highway Authority, Pakistan Steel Mills, Pakistan Railways, WAPDA, Sui Southern Gas Company etc have been incurring immense losses over the years. Sectors which should be contributing to the Real GDP’s growth, instead they are giving a rise to the government’s debt and burden! Why has the performance of several SOEs declined over the years? Unskilled workers in many sectors can be considered a cause. Massive overstaffing can be observed in these firms, just for accomplishing a single task, multiple workers are hired and they are provided with plentiful fringe benefits. Moreover, these workers lack efficiency as they are not skilled enough and do not produce productively.
Pakistan Steel Mills was shut down on July 4, 2023, due to earning losses in billions over the years; however, it currently employs 9,350 workers and each one of them is getting salaries, while not even accomplishing a single task! These state-owned enterprises lack latest technical support and the latest technology. The equipment and machinery used are outdated and do not produce efficiently. In addition, these machines produce poor quality goods, while incurring incredible wastage of resources, huge maintenance and running costs. The Pakistan Steel Mills have the production capacity of producing 1.1-5.0 million tonnes of steel and iron foundries, but why is the steel mill shut down? Why doesn’t the government utilise the production capacity and export the steel instead of importing it?
During 2023, Pakistan imported $2.76 billion of iron and steel which resulted in a deficit of the balance of trade. There is immense mismanagement, corruption and political involvement in these institutions! WAPDA has a capacity to produce 42131 MW of electricity, but it fails to produce electricity efficiently and cost effectively. The Government of Pakistan paid Rs.979.3 billion capacity charges to the independent power producers (IPPs) in the fiscal year 2023-24. Can a debt-ridden economy of Pakistan afford such huge payments? On the contrary, these IPPs are not even producing electricity up to the mark. Why does the government not take measures to curtail these losses and costs? All these factors are contributing to the colossal losses of the SOEs in Pakistan. These losses are depicting a market failure in the economy of Pakistan, adding up to the circular debt, causing a fall in the economic growth and a deficit on the balance of trade (BOT).
Do we want to keep seeing our economy’s downfall? Or do we want to hold all these institutions accountable and curtail these losses to curb the government’s frivolous expenditure? A limited number of employees should be hired in each state-owned entity to curb the costs of the firm. Furthermore, employees should be hired based on a certain eligibility criterion. This way the firms would be able to employ skilled labour which would produce more output from the less given input in a shorter span of time leading to increased productivity and efficiency. Additionally, capital intensive machinery based on the modern technology should be introduced in the enterprises to minimise wastage of resources and to enhance the quality of the goods. Political involvement within the state-owned entities should be strictly prohibited.
PIA is currently in the process of being privatised. However, in my opinion PIA should not be privatised. As the moment it would be privatised the private sector would run it with the profit motive and stop serving the interests of the public. PIA’s flights to Northern Areas like Skardu, Chitral etc would get terminated as these are low profit earning areas. Instead of privatising the quality standards of PIA should be improved. For instance, curbing the number of overstaffed employees, investing in new aircrafts and enhancing the quality of the service being provided.
Entities like NHA, Pakistan Railways and WAPDA should work over their management system and shall apply innovative strategies to turn these immense loss-making entities into the profitable ones. Implementation of such strategies can pave the way for economic development in Pakistan as Government’s expenditure would shrink! Government can invest that Rs 905 billion earned from the losses of these SOEs over other sectors like education, healthcare and agriculture etc. Ultimately, leading to a significant growth in Pakistan’s GDP and an improved economic growth.
