Pakistan's Cabinet Committee Delays Privatization of 40 State Firms Amid Disagreement

Pakistan's Cabinet Committee on State-Owned Enterprises delays privatization of 40 state-owned enterprises amid disagreement between Deputy Prime Minister Ishaq Dar and Finance Minister Muhammad Aurangzeb. The committee directs ministries to submit proposals for categorizing SOEs by May 20, 2024.

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Pakistan's Cabinet Committee Delays Privatization of 40 State Firms Amid Disagreement

Pakistan's Cabinet Committee Delays Privatization of 40 State Firms Amid Disagreement

Pakistan's Cabinet Committee on State-Owned Enterprises (CCoSOEs) refrained from classifying 40 state-owned enterprises (SOEs) as strategic assets on May 13, 2024, delaying their privatization. The decision was made amid disagreement between Deputy Prime Minister Ishaq Dar and Finance Minister Muhammad Aurangzeb on the approach to privatization.

Why this matters: The delay in privatization of these state-owned enterprises could have significant implications for Pakistan's economy, particularly in terms of foreign investment and economic indicators. This development may also raise concerns with the International Monetary Fund (IMF) about the execution of economic stabilization policies, which could impact the country's ability to secure a new bailout program.

Finance Minister Aurangzeb believes that Pakistan's economy can no longer bear the burden of SOEs and advocates for their privatization as early as possible. He dismissed the concept of strategic SOEs, stating, "There is no such thing as a strategic SOE." Aurangzeb emphasized that all SOEs, regardless of categorization, should be handed over to the private sector.

In contrast, Deputy Prime Minister Dar, who is also foreign minister and a confidant of Nawaz Sharif, fears that all-out privatization could deplete his party's already dwindling political capital. Dar proposed the concept of "strategic and essential SOEs," which would restrict privatization to only certain entities.

The final decision on which entities are to be categorized as strategic or essential will be made by the Cabinet Committee on SOEs, headed by Aurangzeb. However, it may not be easy for Aurangzeb to have his way on privatization, despite support from powerful circles that signed him up for implementing reforms under the IMF's tutelage.

The disagreement between Aurangzeb and Dar reflects the tensions within the ruling party and the compulsions of an economy that cannot pick up momentum until it has undergone drastic and politically unpopular changes. The disagreement has emerged at a time when the government is set to start talks for another IMF bailout facility to revive the economy, which may raise concerns with the lender about the execution of economic stabilization policies.

The CCoSOEs meeting, chaired by Aurangzeb, directed concerned ministries and divisions to submit proposals for categorizing their respective SOEs by May 20, 2024. The objective is to retain only essential functions within the public sector and assign remaining functions to the private sector, making entities in the public sector more competitive, accountable, and responsive to citizens' needs. Aurangzeb emphasized, "The objective is to retain only the essential functions within the public sector & to assign the remaining functions to the private sector. At the same time, the entities which remain in public sector have to be more competitive, accountable, and responsive to the needs of citizens."

The delay in privatization of the 40 SOEs, which collectively incurred Rs734 billion in losses according to a 2022 Ministry of Finance report, is expected to have significant implications for Pakistan's economy, particularly in terms of foreign investment and economic indicators. As the country pursues a new IMF bailout program, the privatization of state-owned enterprises is seen as a key step towards achieving economic stability.

Key Takeaways

  • Pakistan's Cabinet Committee on State-Owned Enterprises delays privatization of 40 SOEs.
  • Disagreement between Deputy PM Ishaq Dar and Finance Minister Aurangzeb on privatization approach.
  • Aurangzeb advocates for privatization, while Dar proposes "strategic and essential SOEs" concept.
  • Delay may impact Pakistan's economy, foreign investment, and IMF bailout program.
  • CCoSOEs to submit proposals for categorizing SOEs by May 20, 2024.