New wave of IMF-Imposed Privatisation in Pakistan

18 November by Abdul Khaliq


With Islamabad already meeting the demand for raising power and gas prices, the privatisation of state-owned enterprises (SOEs) remained a top agenda item during the latest review of the $3 billion IMF standby arrangement [1]. Towards the conclusion of the first review for the 2nd tranche of $700 million, Pakistan has agreed to bring four more state-owned enterprises (SOEs) in line with the financing and governance template of the newly approved SOE Law [2]. These four state firms include the National Highway Authority (NHA), the Pakistan National Shipping Corporation (PNSC), the Pakistan Broadcasting Corporation (PBC), and the Pakistan Post [3]. Pertinent to mention, the IMF has demanded that 203 government companies be removed from ministries and placed under the finance ministry as per the agreement [4].



Meanwhile, Pakistan’s newly formed top investment body, the Special Investment Facilitation Council (SIFC) [5], has promised to fast-track the privatisation of state-owned enterprises (SOEs) under the immense pressure of the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
. According to media reports, the government is also discussing outsourcing the operations of several of its state-owned assets to outside companies. In March 2023, Islamabad kicked off the outsourcing of operations and land assets at three major airports to be run under a public-private partnership, a move to generate foreign exchange reserves for its ailing economy [6].

According to the Federal Finance Ministry, the IMF also wants early privatisation of Pakistan International Airlines (PIA), Pakistan Steel Mills (PSM), regasified liquefied natural gas (RLNG) power plants, and state-owned electricity distribution companies during the current financial year.

Amazingly, under the SOE policy guidelines, the government will not set up any new SOEs in the future unless required for strategic reasons or under an agreement with any country, and gradually offload most of the existing 200 entities. Under the IMF agreement, for existing SOEs, the government has to devise a mechanism to gradually privatise or divest these firms as private-public partnerships. Each government division responsible for SOEs must develop a reform plan, including proposals such as listings, restructuring, mergers, public-private partnerships, and asset Asset Something belonging to an individual or a business that has value or the power to earn money (FT). The opposite of assets are liabilities, that is the part of the balance sheet reflecting a company’s resources (the capital contributed by the partners, provisions for contingencies and charges, as well as the outstanding debts). sales. [7]

Under the same policy, the Central Monitoring Unit (CMU) of the Finance Ministry would collect and update the financial results of all state firms by December 2023, to the satisfaction of the IMF.

Privatisation is not a new phenomenon in Pakistan; under the gospel of market economy, the country has been aggressively pursuing the policy of market liberalisation and privatisation since 1991. During the 1990s, after being hit by an economic downturn, Pakistan was forced to adopt the Structural Adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
Programme (SAP) under the IMF to reform the economy suffering from macroeconomic instability.

Pakistan, since then, seems to have indulged in a privatisation binge under which plans have been set to sell off a number of profitable public sector institutions without realising the negative consequences for the socially marginalised classes. In the period between 1991 and 2006, public assets plundered when the government of Pakistan sold out 160 state-owned enterprises at through-and-through prices. Astonishingly, out of which 130 privatised enterprises collapsed [8]. During this period, about 0.6 million workers were rendered jobless as a result of the implementation of ruthless privatisation and neo-liberal policies in Pakistan.

However, the roller coaster of privatisation in Pakistan was suddenly halted when the Supreme Court of Pakistan, through Suo moto notice, struck down the privatisation of Pakistan Steel Mills in 2006 [9]. But with the fresh pressure of the IMF, after 17 years of strategic pause, it appears a new wave of plundering of public assets is about to start in Pakistan.


Footnotes

[1This current $3 billion standby arrangement (SBA) is the twenty-third IMF programme that a Pakistani government has ‘negotiated’ with the IMF. The release of this money was contingent upon the government taking measures including: (1) removing all subsidies related to electricity, gas, and fuel; (2) raising the interest rate; (3) allowing the market to determine the exchange rate; and (4) restructuring SOEs. Pakistan had no choice but to comply with these conditions, with the inevitable result of more crippling inflation.

[2The SOEs (Governance and Operations) Act of 2023, passed in February 2023

[4The IMF has been pushing Pakistan to privatize state-owned enterprises (SOEs) since at least 1991. Despite privatizing 172 SOEs between 1991 and 2015, yielding $6.5 billion, the country was unable to solve either its persistent budget deficit or the issue of long-term growth.

[5Special Investment Facilitation Council (SIFC), a hybrid civil-military government body constituted in June 23 to attract foreign investment in key economic sectors, particularly from Gulf nations

[9Gen. Mushraff had sold out the only steel mills in Pakistan to his cronies at throwaway prices of just PKR 33 billion. Only the affiliated assets of PSM stand at PKR 133 billion.

Abdul Khaliq

CADTM Pakistan

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