public sector in pakistan

Written by Hassan Nasir 4:27 pm Articles, Pakistan, Published Content

An Introduction to the Public Sector in Pakistan

The article discusses Pakistan’s public sector and its various activities. It deliberates on the country’s subsidies, regulatory bodies, redistribution of income, fiscal deficit, and imports.
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Hassan Nasir works at British Council Pakistan. He completed his MS in Economics from Queen Mary University in London.

Pakistan’s Public Sector

The public sector in Pakistan has a vast role in its economy via different regulatory bodies – for example providing products and services in health, energy, defense, and the transportation sector. The part of the economy concerned with providing basic government services to the people is called the public sector. It is the primary role of the government to provide a legal agenda within which all economic transitions occur.

In general, the undertakings of any government fall into the following four categories:

  • Production of goods and services
  • Regulation and subsidization of private production
  • Purchase of goods and services, for example, defense and/or health-related.
  • Redistribution of income for example transfer payment, social security, and/or unemployment benefits.

The public sector in Pakistan is largely seen as being incompetent and inefficient in its working with charges of corruption and inefficiency being cited as primary culprits. The provision of a legal system, which aids in the smooth running of the economy, is one of the most vital activities and functions of the government of Pakistan. The legal system of Pakistan exists for various reasons such as the protection of the rights of people, regulation of banking activities, and trade safety assurances to name a few. The State Bank of Pakistan (SBP) has been empowered to inspect banks via the Banking Companies Ordinance 1962. Apart from that, there are legislations like the State Bank of Pakistan Act 1956, The Financial Institutions Ordinance 2001, Companies Ordinance 1984 and Regulatory Orders, which cover the supervision of the banking sector’s activities. Three trade remedy laws have been put into effect for the WTO trade remedy agreements:

  • Anti-Dumping Duties Ordinance 2000
  • Countervailing Duties Ordinance 2001
  • Safeguards Measures Ordinance 2002

The Public Sector’s Activities

The key economic activities performed by the government of Pakistan such as the management and allocation of the defense budget, activities of the power generation sector, and the management of the postal service sector are explained below:

  • The defense industry of Pakistan is also run by the government of the country and currently produces ammunition, fighter jets, tanks, and armaments. These are produced by organizations such as the Air Weapons Complex, Karachi Shipyard & Engineering Complex, Pakistan Ordnance Factories, and so on. Pakistan also exports $500 million worth of its defense products after fulfilling its own needs. The defense budget of Pakistan was increased by 15% in the last budget, made public a few months ago. The Armed Forces of Pakistan are in charge of the defense of the country.
  • Pakistan Post caters to the postal needs of the country. Founded in 1947, it offers postal services for the citizens of Pakistan such as mail deliveries, parcel posting, certificate of posting, post boxes, etc. It also performs various federal services such as payment to Benazir Income Support Program beneficiaries, collection of taxes, collection of customs duty, disbursement of financial assistance, and so on.
  • The government of Pakistan also provides education to its citizens on every level – elementary, secondary, or tertiary. The federal government has schools in the capital Islamabad e.g. Islamabad College for Boys/Girls. It also has technical and vocational schools and colleges in various parts of the country. Many universities are also given a public sector chartered status such as the University of Engineering And Technology located in Lahore and Peshawar. The provincial governments have also built many schools, colleges, and universities in their respective provinces.
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There also exist private industries and sectors in the country where the government is neither a producer nor a consumer; however, it still has a persuasive effect on the decisions of such private products. This influence is exercised through subsidies and taxes – both direct and indirect –and through regulations. Motives for such government practices may include dissatisfaction with particular actions of a firm – for example pollution. In other cases, private markets may fail to provide certain goods and services that are felt to be important.

The government subsidizes private production in three ways:

  • Direct payments to producers
  • Indirect payments through the tax system
  • Hidden expenditures

The government of Pakistan subsidizes the agriculture sector the most, often by selling producer seeds and fertilizers at a subsidized rate to encourage people in agriculture. Electricity is also being distributed by WAPDA at a subsidized rate. Sometimes the Pakistan government also imposes a price ceiling on different products like wheat and sugar. Concurrently, the government also gives special types of loans and loan guarantees, which contain low-interest rates (below the market level) to facilitate businesses. The government also regulates business activity in an attempt to protect workers, consumers, and the environment to prevent anti-competitive practices and to prevent discrimination.

Regulatory Bodies

The public sector in Pakistan has different regulatory bodies to oversee the activities of different industries of the economy.

Some of the regulatory bodies in the country are mentioned below:

  • National Electric Power Regulatory Authority (NEPRA) has been established as an independent regulatory body to improve the efficiency and availability of electric power services while protecting the interests of consumers, investors, and the operators equally. It also promotes competition and deregulates power sector activities where competition exists.
  • Oil and Gas Regulation Authority (OGRA) was established in 2002 for the development of the oil and gas sector, augmentation of private sector investment, and protection of consumer interests. It regulates various activities including construction or operation of natural gas and oil pipelines.
  • Pakistan Telecommunication Authority (PTA) is a regulatory body for the telecom sector in Pakistan. It has been formed to ensure and facilitate the availability of high quality, efficient, cost-effective, and competitive telecommunication services throughout Pakistan and to protect the interests of consumers and licenses.
  • Pakistan Electronic Media Regulatory Authority (PEMRA) provides project management guidelines and action plans to the private sector involved in radio, television, and cable TV networks in the country. The main objectives of the authority include improvements in the standard of information, education, and entertainment.
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Pakistan’s Imports

The government of Pakistan also purchases goods and services for its economy. Pakistan imports have averaged Rs. 49,003.3 million from 1957 to 2013, reaching an all-time high of Rs. 427,531 million in May of 2013 and a record low of Rs. 96 million in April of 1959. The major imports of Pakistan are fuel, which constitutes 40% of Pakistan’s total imports, followed by machinery and transport equipment (18%), chemicals (16%), food and animal or vegetable oils (13%) and manufactured goods (12%). Pakistan’s main import partners are the United Arab Emirates (19%), China (15%), Saudi Arabia (10%), and Kuwait (8%). Other major import countries are Malaysia, Japan, India, and the United States.  The statistics are elaborated in the graph below.

Pakistan's public sector. Imports from July 2011 to February 2012

Redistribution of Income

Redistribution of the income within the ranks of the people is also the job of the government and is undertaken by the public sector in Pakistan. The government redistributes it through public assistance programs & social insurance programs. Public assistance programs aim at giving the poor, who qualify, resources to live a better life. In Pakistan, the biggest example of a public assistance program would be the Benazir Income Support Program. This program is designed to transfer payments to the extremely poor of the country without requiring anything in return from them. An interesting fact is that the Benazir Income Support Program accounts for 0.3% of Pakistan’s gross domestic product. Social insurance programs are different from public assistance programs in that they are dependent on the individuals’ contributions to the economy, which can be viewed as insurance premiums. The largest chunk of social insurance programs comprises of the funds given to the retired government officials and their surviving families. Apart from that, funds are allocated for the families of individuals who have died serving their country.

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Pakistan’s Fiscal Deficit

Pakistan is under a huge deficit and has to place more taxes to balance it. A deficit occurs when a country’s expenses are in excess compared to its revenues. Taxes are considered the primary source of financing government expenditures. The government of Pakistan borrowed heavily from external and internal sources to finance its fiscal deficit, due to which a huge amount of money was paid towards interest payments. All these factors relentlessly affected Pakistan’s fiscal capacity to finance the fiscal deficit. During the past three years the efforts to contain the fiscal deficit to a reasonable limit through an expenditure management strategy, austerity measures and reforms in the public sector enterprises have yielded the following results. The table below shows the comparison between total revenue in 2011-12 and 2012-13:

Direct Taxes738,822505,076
Indirect Taxes1,144,204847,209
i. Customs216,898170,404
ii. Sales Tax804,846595,987
iii. Federal Excise122,46080,818
Non-Tax Revenue455,515546,767
Gross Revenue Receipts **2,425,7181,994,811

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