Restructuring of PSEs pivotal to reducing fiscal deficit

ISLAMABAD-Pakistan needs to restructure its loss-making public sector enterprises (PSEs) to overcome persistent fiscal deficit, said a renowned economic expert. Yawar Khan, ex-member of the Privatisation Commission of Pakistan, said that a multitude of structural problems in the management of PSEs like Pakistan International Airlines (PIA), Pakistan Steel Mills, Pakistan Railways, and energy companies are causing constant increase in fiscal deficit.
According to a recent report of the State Bank of Pakistan (SBP), the debts and liabilities of loss-making PSEs stood at Rs1.972 trillion by the end of December 2022. This shows an increase of Rs187 billion in one year. The debts of the PSEs alone increased by Rs134.9 billion to Rs1.474 trillion during the first half (July-December) of fiscal year 2022-23. Some public sector enterprises in the country are inefficient due to lack of cost-cutting measures, shortage of skilled professionals, and outdated modes of operations.
Yawar supported the idea of privatisation as the last resort to restructuring the PSEs. Sale out of the loss-making public entities should not be prioritised as the first option, he said, adding that prior steps such as cost-cutting, improvement in procurement practices, adoption of modern technology and innovation must be preferred. “Each year, a significant burden on fiscal resources comes from the scale of subsidies (both explicit and implicit), concessions, financing, government-guaranteed bank borrowing, and foreign loans provided to loss-making SOEs, companies, entities, and corporations under federal and provincial governments ownership and management,” he said while talking to WealthPK. He suggested the fiscal condition of Pakistan can be improved by introducing reforms in PSEs.
According to Pakistan Economic Survey 2022-23, the fiscal deficit during the first 10 months (July-April) of FY23 decreased to 4.6% of gross domestic product (GDP), an improvement from 4.9% recorded during the corresponding period of the previous year. Likewise, the primary balance showed a surplus of Rs99.1 billion during the period under review, contrasting with the deficit of Rs890.2 billion during the same period of the previous year. Yawar cited the telecom, banking, and cement sectors as success stories of restructuring that achieved  remarkable performance improvements  in the past. The fiscal side of Pakistan’s economy is confronting formidable challenges. However, reducing losses or making PSEs profitable can serve as a crucial buffer for the economy.

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