To align the neo-liberal policies of the world, every developing and struggling state is in pursuit of acquiring privatization policies. The same is true for the growing economy of Pakistan. Privatizing a state-owned enterprise (SOE) is not a new concept in the country. Pakistan initiated its major privatization process in 1991 during the tenure of the first Nawaz Sharif Government. The peak was attained in the Musharraf period, from 1999 to 2008. Almost 169 enterprises under government ownership entered the process. However, sudden changes in the government put the hopes of privatization on hold. As of now, the procedure still faces various ups and downs due to Pakistan’s economic grievances. Privatization in Pakistan possesses both hopes and hurdles simultaneously.
The Privatization of State-Owned Enterprises (SOEs)
Benefits of Privatization in Pakistan
Let’s begin with the “hopes,” the foremost benefit of the process is that it would reduce the burden of loss-making SOEs. According to official data, the government-operated enterprise’s losses have reached Rs. 730 billion in the fiscal year 2022 collectively. By making these SOEs private, it would surely relieve the government of the financial burdens and allow it to allocate these resources more efficiently to other critical areas like health and education in the country. Dr. Hafiz Pasha asserted in his book “Growth and Inequality in Pakistan: Agenda for Reforms” that privatization has the potential to reduce fiscal burdens and alleviate the strain on public finances.
Another potential advantage of privatization is that it promotes quality services. Pakistani citizens are fed up with the poor quality services of SOEs owing to mismanagement. Considering the recent cases of Pakistan’s railways and Pakistan’s flagbearer airline; PIA, both are struggling and failing to follow minimum quality standards. By privatizing such SOEs and bringing them into the fold of the private sector, people would at least breathe a sigh of relief at such low-quality services.
Along with this, privatization brings hopes of making enterprises corruption-free. Multiple times, the World Bank, the International Monetary Fund (IMF), and the Asian Development Bank (ADP) warned Pakistan through reports that the state has a flawed system of SOEs due to rampant corruption cases. The scams of the National Insurance Company Limited (NICL) involving the purchase of 10 acres of land in Karachi at exorbitant prices witnessed the point of frequent corruption and bribery in state assets. With privatizing, the risk of corruption, kickbacks, and departmental manipulation would be reduced.
Similarly, privatization also comes as a catalyst for boosting foreign direct investment (FDI) in the country. As rightly mentioned by Joseph E. Stiglitz in his book “Globalization and its Discontents,” privatization helps the FDI as investors seek opportunities in well-managed and profit-oriented companies.
Apart from foreign investment, private entities are also free from political influence that is responsible for downgrading the SOEs. Since public institutes fall under the ministry, political recruitments, internal transfers, and departmental shuffling are done by the ruling party. This makes the public sector ineffective. Thus, private companies cut this political interference and focus only on service delivery and profit.
Challenges to Privatization in Pakistan
Beyond the benefits of privatization, there are also several challenges that undermine the whole process and cause unnecessary delays. The foremost stumbling block in the way of privatization is public perception and the public’s trust in private companies. Public opinion plays a significant role in the success of privatization, but in the case of Pakistan, privatization reminds the public of non-permanent jobs, higher commodity prices, and labor inequalities. So, the general perception of privatization is negative and faces backlash.
During the privatization of Pakistan Steel Mills (PSM), officials faced a huge public outcry about selling this government entity. A similar connotation is also mentioned in Ali Cheema’s research in his book “The Political Economy of Reforms in Pakistan” that in every socio-political reform including privatization, the public can hardly digest the initial sufferings.
Another hurdle in the process of privatization is economic instability in the country. Economic volatility, including inflation, fiscal deficits, and overall underperformance of SOEs creates an uncertain environment for privatization. Economic conditions complicate privatization and lose the buyer’s interest thus causing hindrances as asserted by Ishrat Hussain in his multiple reforms. Without steady economic conditions, expecting benefits from privatization policies would be a wild goose chase.
Along with the above, political instability also creates obstacles. Consistent government policies make robust reforms—including privatization. However, frequent changes in government halt the process and leave every policy stranded for the next administration to pick up. It is also uncertain whether the new government will follow up on those pending projects and decisions. This goes to show that every big project and policy remains at a crossroads due to erratic governance. For instance, CPEC faced several delays owing to a shift in government from one party to another. For that, Pakistan’s all-weather friend China suggested an unnecessary pause in the project due to political uncertainty. Privatization policies fall into chaos due to irregularity in political decisions.
To conclude, there is a clear debate about whether Pakistan is ready for privatization policies or not. Can Pakistan swallow this bitter pill for its long-term benefits? Would Pakistan be able to manage such a transformation for a greater future in privatization?
How to Implement Privatization Programmes and Policies?
Privatization in Pakistan is a double sword that possesses both pros and cons. With careful decisions and viable prospects, one can reap the fruits of privatization. The following steps are necessary for the state:
- To make a robust legal structure for privatized companies
- Reform the Pakistani market economy to make it suitable for the public
- Opt for public-private partnership which would reduce the anticipated adverse impacts of privatization policies in Pakistan.
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The views and opinions expressed in this article/paper are the author’s own and do not necessarily reflect the editorial position of Paradigm Shift.
He is an assistant engineer in Public Health Engineering and Rural Development for the Government of Sindh. He's an independent researcher and writer who graduated from Mehran University of Engineering and Technology.