Cash-starved Pakistan will amend the laws for the sale of shares of listed state-owned entities with a buyback option to friendly countries on a government-to-government basis to help bridge a part of $4 billion financing gap estimated by the International Monetary Fund (IMF) for the current fiscal year.
The announcement was made by Finance Minister Miftah Ismail on July 27 while addressing a seminar on the state-owned entities (SOEs) corporate governance.
Pakistan’s economy in for a jolt
The Minister also said the ban on imports would be lifted in a couple of weeks and all prior actions agreed upon under the staff-level agreement with the IMF had been completed and there was no more hitch to be able to getting the first tranche in the later part of August, the Dawn newspaper reported on Thursday.
Without naming the Inter-Government Commercial Transaction Act 2022 that the Federal Cabinet approved later in the day, the Finance Minister said the law was necessary because the existing privatisation law did not allow such commercial transactions on a government-to-government (G2G) basis.
An official statement after the Cabinet meeting said the Cabinet approved ‘Inter-Government Commercial Transaction Act 2022’ presented by the Ministry of Law and Justice and referred it to the relevant Standing Committee of Parliament.
The Cabinet was informed that the law would provide confidence to foreign investors and also increase foreign investment on a G2G basis in developmental agreements.
The Minister also talked about the prior actions committed with the IMF for the revival of its programme and said the government would be lifting the ban on imports in a couple of weeks because it created difficulties for the people.
Pakistan’s economic muddling and the IMF challenge
Mr. Ismail said Pakistan had a persistent issue with the SOEs as some of them were badly managed and while some of them were important for service delivery, even those were not providing services and were rather creating problems in the budget.
Mr. Ismail said most of the SOEs had professional people running them, yet they were not able to perform which meant that maybe laws and governance structures restrict their ability to perform. “Therefore, the country perhaps needed better law and governance structures to make such entities perform or better ways to expedite their privatisation,” the report said. He said there had been no progress on privatisation either over the past decades.
The Minister said the country faced an LNG shortage because the Ministers and officers in the previous government were scared of the National Accountability Bureau (NAB) and its law to take decisions and book future orders.
“On the other hand, such a law also provided an excuse to the people to not work or take decisions which had a huge cost to the nation,” he said. “NAB has been in place for 20 years but the level of corruption or perception of it did not go down,” he said.
The reason was that these laws were a straightjacket and provided some people an excuse to not work. Therefore, the change in SOEs-related laws would be made “appropriately to sell SOEs shares to a friendly country through a stock exchange” and two LNG-based power projects owned by the federal government — Balloki and Haveli Bahadur Shah — to another friendly country, the Minister said.
Though the Minister did not name the friendly countries, Pakistan has close relations with nations such as China and Saudi Arabia which have doled out huge assistance to Islamabad during its financial woes. Mr. Ismail despised that even though talks for these transactions had not begun, some people had started criticising the sale of “family silver”.
“We are only selling shares traded at the stock exchange and only a little bit of each of them. We are not selling majority shares or ownership shares and we are selling a small number of shares on buyback option,” he said.
“He said the government could buy back those shares at a later stage if it so desires with improved economic conditions,” the report said. Cash-strapped Pakistan could face a serious economic problem as its foreign exchange reserves are depleting fast amid rising external debt servicing.
The governments in FY22 that ended on June 30 could not control the influx of huge imports totalling $80 billion creating a large current account deficit (CAD), which alone is enough to understand the external weakness of the economy.
Despite record remittances and exports, the country is unable to get dollars from the international debt market. Pakistan has faced growing economic challenges, with high inflation, sliding forex reserves, a widening current account deficit and a depreciating currency.
With the rising current account deficit at #13.2 billion in the first nine months and pressing external loan repayment requirements, Pakistan required financial assistance of $9-12 billion till June 2022 to avert further depletion of foreign currency reserves.
