Finance Minister Miftah Ismail has announced that the government will be amending laws to allow for the sale of shares of listed state-owned entities (SOEs) with a buyback option to friendly countries on a government-to-government (G2G) basis. This will essentially help bridge a part of the $4 billion financing gap that has been estimated by the IMF for the current fiscal year. To make this possible, the federal cabinet has approved the Inter-Government Commercial Transaction Act 2022 because the existing privatisation law did not allow for such commercial transactions on a G2G basis.

This is an innovative approach to deal with the ongoing crisis, but it has understandably raised questions regarding the contours of such an agreement. FM Ismail is convinced that the introduction of this law will give confidence to foreign investors and also increase foreign investment on a G2G basis in developmental agreements. Additionally, this is also the first time that practical steps are being taken to safeguard G2G agreements and make them transparent.

Of course, there has been a persistent issue with the performance of SOEs that have been burning a hole through our budget and this is an idea that could help generate some revenue. The priority should perhaps be to focus on loss-making entities such as PIA and power distribution companies that have not been performing that well.

However, this idea has received criticism and has also been politicised by opponents. The main questions being raised revolve around the details of such agreements. What will be the pricing of shares and what would the buyback clause entail? When can the buyback option be activated and how much would the premium be? There are also concerns about the extent to which we will be relinquishing management control.

Based on the statements put forward by FM Ismail, it should not really be a concern if the share price is not reflective of its actual worth because according to the G2G agreement, Pakistan will be able to buy back the shares at a minimal premium of around five percent. Moreover, it has been clarified that management control will be retained and that the government will not be selling majority or ownership shares.

Based on the information that has been shared thus far, this is an unconventional idea that could work if the above-mentioned safeguards are included in the transactions. The government should be prepared to field a lot of questions and face criticism considering the skepticism (organic and induced) surrounding this decision; nevertheless, such measures that can help us attract investment into the country are the need of the hour.