Home Business Unchecked borrowing, accountability gaps cause SOEs’ downfall: experts

Unchecked borrowing, accountability gaps cause SOEs’ downfall: experts

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ISLAMABAD, June 07 (INP) – Pakistan is facing the twin challenge of debt repayment and insufficient reserves, with the state-owned enterprises (SOE) performance being the country’s primary concern.

Talking to WealthPK, Director of the Privatisation Commission Zain Gillani said the government had frequently bailed out these lossmaking companies. Their entire outstanding debt and liabilities as of December 2023 are PKR2.35 trillion. In addition, the external debt is projected to reach $131.159 billion by the end of the first half of FY2025.

To achieve fiscal discipline and stabilize a fragile economy, the government has decided to privatize these unprofitable SOEs, with the Pakistan International Airlines (PIA) at the top of the list. The government plans to partially privatize the national flag carrier by selling 51% of its shares and management rights.

“The restructuring aims to separate the aviation-related components from non-core elements, reducing the debt burden on the functional units. A PIA holding company has been established to manage the airline’s debt, including PKR243 billion owed to the domestic banks and a foreign loan of $88 million, facilitating the privatization process,” he pointed out.

He said by June 2022, the PIA’s balance sheet showed a negative equity of PKR490 billion, including substantial bank loans and government guarantees. The airline’s decline has been further accelerated by frequent management changes, union and political influence, unchecked borrowing, and lack of accountability.

Additionally, issues such as the fake pilot license scandal, poor airport infrastructure, flight delays, and massive corruption have plagued the airline, leading to financial losses of up to PKR724 billion by the end of 2023, Gillani said.

Talking to WealthPK, Federal Minister for Privatization and Investment Board Abdul Aleem Khan said privatization is expected to generate $250-300 million, though the actual value may vary.

He pointed out that the privatization initiative is anticipated to enhance efficiency, productivity, private investment, and service quality while safeguarding public interests.

“However, it is crucial to regulate the process to avoid potential negative outcomes, such as increased unemployment, limited access to flight routes in marginalized regions, and monopolistic practices,” he highlighted.

Learning from successful privatizations in countries like Sri Lanka, the United Kingdom, and Germany, Pakistan aims to transform its loss-making SOEs into profitable entities. For instance, the Sri Lanka Telecom and Sri Lankan Airlines turned into highly efficient businesses after privatization in late 1990s. Similarly, the British Airways and Lufthansa, privatized in 1987 and 1994 respectively, have become the leading airlines globally.

To achieve successful privatization, Pakistan must establish a stable macroeconomic framework, prioritize institutional capacity development, and ensure strong regulatory oversight during the restructuring phase.

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