Can PTI government overcome mammoth debt facing the PSEs?

News Analysis |

Public sector enterprises debt has swollen up to almost Rs 500 billion in last two years of the PML-N government. The debt pile of the chronic enterprises has increased to staggering Rs1.068 trillion at the end of June 30, 2018. This increase is a monumental challenge facing the Pakistan Tehrek-e-Insaf government.

According to the official data, debt in PSE increased to Rs822.8 billion in FY17 from Rs588 billion in FY16 which is the increase of 39.93%. The cumulative figure of overall, debts, and liabilities have reached to a staggering Rs1.3 trillion in this financial year. After the temporary decline in the initial years of the PML-N government, the debts and liabilities of PSEs stood at Rs793.4 billion in FY16 and Rs1.052 trillion in FY17.

PML-N’s ministry of privatization failed to privatize the ailing government entities, amid huge uproar from opposition benches among which PPP was the leading party to show hostility to such moves.

The breakdown of the loss-making entities Pakistan International Airline (PIA), Water and Power Development Authority (WAPDA) and Pakistan Steel Mills (PSM) in particular reveals that PIA remains the biggest liability on the exchequer. The third worst airline in the world, incurred losses of Rs146 billion in FY18. The losses of the national carrier stood at Rs99.8 billion and Rs122 billion in FY16 and FY17 respectively.

However, the percentage increase in losses dropped in FY18 as the percentage increase in losses was 22.24% in FY17, and it is reduced to 19.7% in FY18. Under the leadership of Dr. Musharraf Rasool Cyan, PIA has been looking to change the direction/course of this sinking ship, but, is yet to make any practical in roads, other than the usual optics.

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In absolute terms, Water and Power Development Authority (WAPDA) shows the similar trend. The losses surged from Rs81.8 billion in FY17 to Rs131.2 billion in FY18. It is the staggering increase of the 60.39% in FY18 from 46.6% in FY17 as the losses were Rs55.8 billion in FY16. Since FY16, the PSM continues to incur losses of Rs43.2 billion per year.

Despite the chronic issue facing these PSEs, previous regimes of PML-N and PPP failed to avert the crises and could not bring the required structural changes to reduce the costly losses. PML-N’s ministry of privatization failed to privatize the ailing government entities, amid huge uproar from opposition benches among which PPP was the leading party to show hostility to such moves.

The government is yet to decide if it goes to IMF or not. But, more likely, it would go and would have to adhere to the austerity measures (as always) devised by the IMF to ensure fiscal discipline.

PTI also resisted the privatization of these entities and accused the Nawaz government of weakening the state institutions. Imran Khan advised the government to eliminate corruption to improve the performance of PSEs. PTI’s 100-day plan addressed the issue. According to the document issued during the campaign trail, PTI vowed to transform the key institutions. Asad Umar spoke extensively on the program and promised the turnaround of key State-Owned Enterprises (SOEs) by creating the Pakistan Wealth Fund and by taking SOEs out of the purview of line ministries.

PTI had promised to start the reform of PIA, Railways, Pakistan Steel Mills, GenCos, DisCos and other enterprises on an emergency basis. PTI is yet to public the detailed blueprint or policy mechanism to implement its vision. These are, still early days in the government, and it requires a detailed overview of the holistic economic conditions, to put forward the plan.

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Nevertheless, one must realize, as the Sajid Amin of SDPI suggested in an interview with GVS that, the value of PSEs is less than 1% of Pakistan’s GDP. Let’s suppose, if PTI manages to overhaul them 100%, revenue will not improve much. But, it will cut down the subsidy which was wasted in these cash-sucker entities.

Since the previous regimes failed to tackle the underlying structural issues facing the PSEs, numerous unwanted policies were enforced on the public. The PML-N government failed to tackle the circular debt and at the behest of International Monetary Fund (IMF), for example, to restrict losses of Wapda, it enforced the additional electricity surcharges to facilitate cost recovery until the underlying structural issues are tackled.

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Even, if the incumbent regime could not resolve technical and distribution losses in the power and gas sector, for example, it will have to increase the electricity prices to bridge the fiscal deficit. Fearing the public backlash before the elections, the previous regime did not go to the IMF, otherwise, it had to postpone extravagant election spending.

The government is yet to decide if it goes to IMF or not. But, more likely, it would go and would have to adhere to the austerity measures (as always) devised by the IMF to ensure fiscal discipline. It’s a daunting task facing PTI coalition government and would require a serious effort to overcome the systematic errors accumulating for years