Beyond PIA

19 Feb 2016


The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.
The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

THE recent events surrounding the government’s nearly botched attempt to privatise PIA, and the official narrative weaved to justify the act, raise disturbing questions that are ‘larger’ and more fundamental than the issue of privatisation itself.

Here is what we know — or have been told: PIA is among a clutch of government-owned or controlled, poorly performing enterprises that cause an annual loss of hundreds of billions to the exchequer. This annual loss occurs due to overstaffing, embezzlement by workers, low productivity and effort in a public-sector setting, and the inability to reward performance or punish lack of it that is typical in government and the wider public sector. In addition, there is lack of investment and innovation stemming from the fact that the public sector cannot charge cost-recovery prices.

The country’s entire power system, from generation to distribution, its railways, government-owned steel mills etc are all afflicted by the same factors listed above. But what is glaringly omitted from the official narrative is the role of different governments and different prime ministers since the 1990s, including Nawaz Sharif, in bringing these public-sector entities, including PIA, to their current state of ruin through acts of omission as well as commission over the years.

The failure of the public sector underscores the long-term collapse of governance.

Take the case of PIA. Contrary to conventional wisdom, its financial ruin has not been brought about solely by overstaffed, powerful and thoroughly corrupt unions. While conventional wisdom is quick to point to the nearly 600 employees per operational plane in PIA’s fleet, the staffing costs emanating from this excess account for around 15pc to 20pc of total costs.

The rest of the damage to PIA’s operational profitability since the 1990s has come from appointment of cronies of one prime minister or the other, many with open conflicts of interest, to head PIA; from underhand deals, overpriced purchases, shady contracts and nepotism in appointments, promotions and transfers. (And yes, the stuffing of party jiyalas too). It has also come from specific actions like the ‘open skies’ policy pursued by Nawaz Sharif since the 1990s and, to a more contentious degree, from the multiple code-sharing agreements the airline entered into over the past five years or so.

The two sources of this mismanagement, maladministration and misgovernance are the wider political ecosystem (under both civilian and non-civilian set-ups) and senior management of PIA and the other entities running in red — including their boards.

In essence, the failure of the public sector in general, and of specific public-sector entities in particular, reflects the failure of governance at two levels: at the level of the political system, and at the level of the board of directors. Instead of the entire focus on the ‘havoc’ caused by the excess number of employees, why haven’t we heard enough of this failure of governance as an issue that needs to be addressed? Shouldn’t there be appropriate accountability of those in power whose actions and misdeeds have brought public-sector enterprises to their wasteful state? And why does enforcing accountability matter?

During the debate on PIA’s privatisation, a lot was heard about some of the world’s leading airlines, many relatively new and from this part of the world, that were state-owned or state-controlled. The example of Emirates, Qatar, Etihad, Sri Lankan and Singapore Airlines was given to support the case for not privatising PIA. The more relevant, and perhaps more troubling, example is from much closer-to-home: if PIA could be run as a world-class airline three decades ago by eminent and above-board Pakistanis such as Nur Khan and Asghar Khan and others, why could it not be by Asif Zardari or Nawaz Sharif? What has changed in Pakistan that we are unable to produce men of honesty and values — and competence — to run our affairs, be it our national airline or our government?

So the larger point about the prime minister boldly declaring how he will defend the virtues of private ownership from the ills of the public sector is that the ills of the public sector are not just in PIA or Railways or Wapda or Steel Mills. They are in the way the public sector manages the country’s education and health sectors, or its myriad governmental organisations, divisions, agencies, functions and institutions.

If PIA, with its Rs100 billion annual turnover, is rotten and Mian Nawaz Sharif’s government cannot control its mismanagement and corruption and considers selling it to a private owner as the only solution, can his administration be trusted with the management of Rs3,018bn in tax revenue, Rs5,400bn in public expenditure, and Rs9,500bn in deposits of the banking system? An admission of failure in running PIA is an admission of failure in running the government.


A few days ago, a reputable international financial newswire service carried a highly misleading and factually incorrect story about Pakistan’s maturing debt obligations this year. Although the story was corrected later, by conflating domestic debt repayments with maturing external obligations, it gave the impression of a high possibility of default by Pakistan on its debt.

While many independent commentators, including myself, have expressed concern at the pace and magnitude of debt accumulation by this government, it would be highly irresponsible and fallacious to suggest that the country is on the verge of default. This is simply not true. Our concerns have been expressed about the sustainability of the debt burden in the medium term, not for this year or the next or the year after. To put the issue in perspective, Pakistan’s current foreign exchange reserves of $21bn more than adequately cover its net external financing requirements for the year (debt servicing, payment of Fx liabilities and the projected current account deficit).

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, February 19th, 2016