Looming Elections Sidetrack Pakistan’s Privatization Driveby and
Chief disappointed reforms stalled after political resistance
Prime Minister Sharif under pressure from Panama paper leaks
Pakistan’s drive to sell stakes in its loss-making state-owned entities has been all but abandoned, as the government bows to threats of widespread protests over potential job losses.
Former IBM executive Mohammad Zubair, the minister of state for privatization, has found his work increasingly sidelined, even as annual losses from state companies rack up at 600 billion rupees ($5.7 billion), higher than Pakistan’s budget for health and education.
As Prime Minister Nawaz Sharif gears up for his re-election bid in 2018, Zubair, 60, said restructuring -- instead of selling companies -- is now the government’s focus.
“Obviously it was a disappointment for me,” Zubair said in an interview last month in the capital, Islamabad. “I would have wanted to go on with the privatization process, but it was the prime minister’s decision.”
It’s a turnaround from three years ago when Sharif, 66, agreed to sell stakes in about 40 largely mismanaged state-run companies as part of a condition of a $6.6 billion loan package from the International Monetary Fund taken to avert a payments crisis.
Despite a few successful transactions in the administration’s first two years in power, the privatization bids stalled after strong resistance from political opponents and labor unions who have protested in Parliament and the streets.
The prime minister is also facing increasing political pressure after leaked files from a Panama law firm showed his children used offshore companies to make investments. The country’s Supreme Court is now deciding whether to investigate the corruption allegations made by opposition politicians. Sharif has denied any allegations of any wrongdoing by himself and his family, but the turmoil has distracted from his bid to boost economic growth to 7 percent by 2018.
The government is unlikely to go ahead with reforms “that would unnecessarily risk its prospects of securing re-election, such as privatization,” said Firat Unlu, an Asia analyst at the Economist Intelligence Unit in London. “The privatization drive has largely failed to have the targeted impact.”
The three companies seen as benchmarks for success, Pakistan Steel Mills Ltd., national carrier Pakistan International Airlines Co. and Faisalabad Electricity Supply Co., have all been earmarked for privatization for more than two decades. Little progress has been made.
Attempts to sack employees at PIA and sell a stake in the company were met with violent protests in February. Even public discussion of reforming the carrier is taboo.
Last month, before one of PIA’s ATR planes crashed and killed all 47 people on board, an executive director at the company told reporters in Dubai the airline is planning to cut 3,500 jobs in a year. Later, a PIA spokesman said the carrier hadn’t yet made such a plan.
The sale of Pakistan’s electricity distribution companies has also been delayed, with any government divestment now expected to happen after the 2018 election, Planning Minister Ahsan Iqbal said in an interview in London last month.
The delay means Sharif’s administration has to pump in more cash to keep the entities afloat, said Mohammad Sohail, chief executive officer of Topline Securities in Karachi, Pakistan’s commercial hub.
The total debt of public sector enterprises went up 20 percent to 856 billion rupees in the fiscal year through June from the previous year, according to the State Bank of Pakistan.
“There have been disappointments on the economic side and the major disappointment is the row back of the privatization program,” Mohammad Shoaib, chief executive officer of Al Meezan Investment Management Ltd., Pakistan’s largest asset manager, said in an interview. “They had a clear mandate, they had the majority, the opposition was not that strong. I think there has been a lost opportunity on that side.”
Free from the shackles of the IMF program, which came to an end in September, there are concerns the government will also slow down on other economic reforms.
“Pakistan’s rising population means that, for the foreseeable future, political parties will have an incentive to compete on jobs and state-owned-entities,” said the EIU’s Unlu.