The baffling legacy that haunts policymakers

Updated 06 Jul 2020

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The country’s economic team is reported to have identified several reasons for the poor performance of the SOEs including political interference by parent ministries. — AFP/File
The country’s economic team is reported to have identified several reasons for the poor performance of the SOEs including political interference by parent ministries. — AFP/File

EFFORTS made from time to time to stem the organisational/institutional decay and improve governance have not yielded desired results so far. For example, the problematic structuring and/or strategic sale of huge bleeding state-owned enterprises (SOEs) has defied solution for the past well over a decade.

The country’s economic team is reported to have identified several reasons for the poor performance of the SOEs including political interference by parent ministries, their lack of technical and specialised skill for managing commercial entities and over-regulation by multiple official agencies. About 85 per cent of all SOEs work under line ministries.

The Cabinet Committee on state-owned enterprises (CCoSOEs) decided on June 24 to set up a sub-committee, headed by Minister for Industries and Production Hammad Azhar, to study the status and implementation of the recommendations of the task force on austerity and institutional reforms for reorganisation and restructuring of the federal government.

As the progress in the last 22 months indicates, reforms are unlikely to be completed in a single five-year tenure by PTI

Economists with intimate knowledge say various attempts to carry out institutional reforms failed because they never got past the implementation stage. They were blocked by vested interests and put half-hearted in a half-hearted fashion. Though Prime Minister Imran Khan seems to be making more determined efforts than put in earlier by two previous governments to improve governance, challenges in implementation seem no less, if not more daunting now. However, unlike his immediate predecessor, the prime minister enjoys the support of the real power wielders.

Read: Losses of SOEs exceed defence budget outlay, Senate told

The prime minister told the Parliament on June 30 that his government was now embarking on a plan of massive institutional reforms, adding: “this is the only solution available to us to bring Pakistan out of the trouble.”

The PPP government that came into power after the prolonged quasi-military rule was single-mindedly focused on forging ‘participatory federalism.’ It gave the provinces fiscal, administrative and legislative autonomy, upgrading their status to quasi-federating units. It had very little appetite for institutional reforms.

Politically troubled throughout its tenure, the PML-N government that followed the PPP rule was busy most of the time trying to survive which dispersed its focus on reforms. Its efforts to restructure the SOEs did not succeed. On June 21 the Privatisation Division short-listed ten, from earlier 18 unsold entities on the last year’s agenda, for sale during 2020-21 to raise budgeted Rs100 billion revenues.

Observing the performance towards the end of the last year, the International Monetary Fund’s Rapid Instruments documents had projected that no revenue will be forthcoming from privatisation in 2020-21. The initial move to form Sarmaya Pakistan Ltd — based on the Malaysian experience — for turning around 441 public companies is a non-starter. All members of the Sarmaya company board have resigned one after another in the face of hiccups and no progress. Some analysts are of the view that it is not possible for the firm to mobilise enormous funds required for revival of the ailing SOEs.

In joint research, Khan, M. Zeb, Zia and Yarid Ahsan argue that the major reason for the failure of institutional reforms is the lack of an indigenous model that informs and guides formulation, implementation and evaluation of reforms.

Sakib Sherani says the standard practice has been to select a narrow band of reformers, usually all macroeconomists, instead of a much wider team comprising experts from different fields including change management specialists, system designers and behavioural economists.

Meanwhile, the SOEs’ continue to sink. In 2019-20, they posted Rs265bn losses despite getting an aggregate Rs692bn in support during 2017-18 on account of subsidies, cash development plan and government guarantees.

And on a wider front, according to the Federal Board of Revenue (FBR) data, the total cost of income tax exemptions and concessions granted to the state apparatus amounted to Rs83.64bn in 2019-20. The beneficiaries include development projects.

The Cabinet Committee on state-owned enterprises has proposed 18 companies to be considered for liquidation, 35 for mergers with each other, 17 to be organised into training institutes and 237 to be converted into government departments or corporations.

Overall, the reforms are aimed at a) restructuring and strengthening key government institutions; b) reorganising the federal government; c) reforming the civil service.

The latest budget documents indicate that the number of federal government division(s) has dropped from 42 to 39 in 2020-21. The three divisions which have ceased to exist are statistics, textiles and capital development and administration. Earlier, it was also announced that the postal division was merged with the communication ministry.

Tariff determination has been taken away from the FBR and entrusted to the National Tariff Commission. The commission is mandated to recommend measures to protect infant industry and make it globally competitive within a specified time span.

Independent agencies have been set for low-income housing and public-private partnership. The performance of these entities will depend on the cooperation that they can secure from federal and provincial departments and autonomous bodies. Land acquisition, for example, is a major problem and so is financing for housing projects and mortgages. The budget for 2020-21 has earmarked Rs50bn for public-private partnership projects and seed money of Rs30bn for low-cost housing.

However, to improve service delivery, a roadmap has been prepared for an e-office suite to be introduced in all federal ministries. There is some consensus among independent economists that reforms are necessary for developing countries to fight corruption and/ or modernise large outmoded bureaucracies and bring them in the information age and democratic order.

Despite being a cornerstone of the PTI’s policies, corruption in Pakistan remains a major problem. For 2018-19, the first year of PTI’s five-year tenure, the Auditor General of Pakistan’s (AGP) report shows misappropriation and embezzlement of public funds in various federal ministries of over Rs12bn and spending irregularities amounting to Rs258bn.

The AGP has advised the government to ensure that no expenditure is incurred without budgetary cover and authorisation by the parliament.

As the progress in the last 22 months indicates, reforms are unlikely to be completed in a single five-year tenure by PTI.

Published in Dawn, The Business and Finance Weekly, July 6th, 2020