Privatization Approach
ISLAMABAD: The World Bank expressed concerns about Pakistan’s privatization approach for its state-owned entities (SOEs). It highlighted the negative impacts of judicial activism, political interference, the sale of K-Electric, and what it termed the flawed Sarmaya-i-Pakistan model.
The financial institution warned the government about potential legal disputes arising from divestments to foreign states under government-to-government contracts. Instead, it recommended conducting public offerings through stock exchanges, followed by privatization under the transparent oversight of a special joint committee of the parliament.
In its Public Expenditure Review 2023, the bank specifically addressed the Inter-Governmental Commercial Transactions Act 2022, which permits the government to offer SOE shares to foreign governments. The bank cautioned that such a move could result in litigation, raise concerns about transparency and full disclosure, and potentially further slow down the privatization process.
The bank highlighted that SOEs in Pakistan had experienced a decade-long decline in profitability, transitioning from profits to losses. The profitability of Pakistan’s federal SOEs, it noted, had become the lowest in the South Asian Region. Their combined profit, which was 0.8% of GDP in 2014, had turned into losses equivalent to 0.4% of GDP in 2020 and was on the rise. This trend had become a significant contributor to the fiscal deficit and posed substantial fiscal risks.
The World Bank identified several key factors responsible for the unsuccessful privatization efforts, including economic volatility, judicial activism, litigation, weak political commitment, and perceptions of corruption post-2007.
Judicial decisions and international arbitration failures undermined Pakistan’s trustworthiness, while resistance, concerns, and management issues hindered privatization efforts, including the establishment of Sarmaya-i-Pakistan Limited.
In conclusion, the World Bank recommends a transparent and gradual approach to privatization, emphasizing safeguards to mitigate social impacts and promote competition while enhancing parliamentary oversight.
