Islamabad: The Asian Development Bank (ADB) is set to approve a $300 million budgetary support loan for Pakistan for public sector reforms amid the country’s flagging commitment to privatize the loss-making entities.
The Board of Directors of the Manila-based lending agency will take up Pakistan’s request for a $300 million loan next month that Finance Minister Ishaq Dar is eager to receive before June 30, said sources in the Finance Ministry.
As is the case with all budgetary support loans that focus on some Public Sector Enterprises (PSEs), this time, Pakistan Railways will be at the center of the new loan package, and it is required to take six policy actions, including the reduction of its workforce, according to the official documents.
The $300 million loan will be the first tranche of the $600 million loan that the ADB will give to restructure the PSEs during the next two years.
“Privatisation is not the only solution, as the performance of the public sector enterprises can be improved by ensuring financial transparency and implementing good corporate governance,” said Werner Liepach, the Country Director of the ADB, while talking to The Express Tribune. Liepach said the $300 million reform program would support the government’s efforts to improve public sector enterprises’ performance.
Initially, the loan was $150 million, which has been increased at the request of Pakistan due to its growing debt obligations, said the sources.
The program will also help identify and reduce the contingent liabilities of the public sector enterprises, as the government is accused of concealing the actual liabilities, said the sources in the Finance Ministry.
Under the loan conditions, the government will be bound to allocate resources equivalent to about 0.4% of GDP for the development expenditures of the PSEs.
The ADB has noted that 65% of federal bailouts were consumed in meeting current expenses in the current fiscal year, severely limiting critical capital development expenditures to improve efficiency.
“Power distribution companies, Pakistan Steel Mills and Pakistan International Airlines need substantial upfront reforms and investment as well as efficient management of stakeholder interests before privatization can materialize,” according to the program documents.
Pakistan Railways
Pakistan Railways is not on the privatization list but requires alternative approaches for improving efficiency, service delivery and asset management, and reducing contingent liabilities.
The ADB noted that the Railway’s liabilities have piled up due to maintaining non-core operations, large unfunded pension liabilities, poor revenue generation, poor financial management, and internal controls. Liepach said that the ADB was quite pleased with the performance of the Railways in recent years and was willing to invest money in further improvements.
The federal government owns 191 PSEs with an asset base of Rs9.4 trillion in the fiscal year 2013-14 and employs more than 420,000 workers.
The Pakistan Railways employees’ strength is 78,000. According to the documents, Pakistan Railways has been picked to retrench the workforce and must submit a workforce rationalization plan by next month. The Railways would also digitize the land asset database.
The ADB has cautioned that the success of the $300 million reform program hinges on public awareness of the reform process and benefits and strong government commitment, and adequate support from all the stakeholders.
The ADB is eyeing a 20% increase in profits of the PSEs and the government’s dividend incomes in the next two years due to its $300 million investment, which seems an uphill task.
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