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Privatisation stimulates economic growth.

Through experience the world has learnt that privatisation is a must for speeding up growth and investment. The fall of the Soviet Union has thrown into bold relief the inefficacy of the socialist system to solve the economic problems of a country. It rather drove the giant nation to the edge of precipice. Nearer at home, Pakistan lost the golden opportunity to emerge as the Asian giant in the seventies consolidating the gains of 1960's when large scale nationalisation by the then PPP government put the economy in the reverse gear. Investment stagnation, flight of capital, production slow-down and growing labour-indiscipline became the order of the day. As a result the economic scene was characterised by mounting inflation, growing unemployment, low productivity, falling exports, increasing indebtedness and growing hardship of the masses. In a nutshell, complete bankruptcy and insolvency gripped the economy, thanks to bureaucratic ineptness, non-chalance and corruption. The public sector units became a permanent liability whose recurring deficits had to be picked up by the government every year. This alone constituted a serious drain on the government resources. Falling output and increasing loss deficits led to the loss of revenue to the government. The concerns which were earning handsome profits in private sector, became sick and showed huge losses after being nationalised. The bulk of the industrial units were in the red constituting a serious drain on the government resources. Yet the successive governments did nothing to put these units back on the rails by undertaking a vigorous disinvestment programme.

All the plans and programmes for denationalisation of the public sectors remained a non-starter until the advent of the present IJI government. Soon after coming into power Prime Minister Nawaz Sharif called for giving much greater attention to policies and programmes that promote social development in Third World countries. Drawing strength and inspiration from widespread enthusiasm for policies of privatisation and deregulation in the world, he emphasised that they were necessary in order to accelerate growth and investment. Hence he initiated a series of measures to ensure speedy privatisation of the projects in the public sector so that the government may concentrate on infrastructure and social action programme such as education, health care, population planning, supply of drinking water and rural electrification in order to improve the living standards of the broad masses.

For this purpose, a comprehensive strategy for social development had to be formulated and implemented simultaneously to ensure that the gap between rich and poor, urban and rural areas and between developed and developing countries did not become wider.

In mid-1960s, an attempt was made in Pakistan to supplement the economic strategy with proposals for the development of the social sector and human resources but these programmes were not implemented in practice. As a result, there was a strong politial backlash on such issues as concentration of industry, banking and insurance companies in the early '70's. Thus a very dynamic economic strategy which had yielded a growth of 7 per cent per annum in 60's was effectively derailed. Pakistan had to learn a lesson from the unfortunate experience.

The present government therefore embarked on a vigorous privatisation programme to enable the economy to regain the buoyancy of 60's. A liberal package of incentives has been given to the private sector to set up industrial units. The economy has been completely deregulated in order to remove all the hurdles in the way of prospective investors. Above, a process of denationalising nationalised units has started which is likely to be completed soon.

Side by side the government has taken measures to strengthen social development as the second wheel of the cart. These include:

* An improved legal and fiscal framework to protect the interests of shareholders, the depositors and the consumers, to guard against monopolies and to ensure that the business community paid its taxes.

* A three-year social action programme to overcome enormous shortfalls in education and health facilities.

* A very ambitious self-employment programme through loans and training.

* Special policies and programmes for agriculture and rural development supplemented by a national rural support programme to secure greater community participation.

However, the government is aware that these initiatives are not enough and there is need for additional measures, particularly to tackle the serious problem of unemployment and the quality of public services available to the common man.

The Privatisation Commission has so far privatised 57 enterprises through the process of open bidding and by calling for sealed bids. The bid amount received is estimated at Rs. 9 billion. It is hoped that with the completion of privatisation programme, the government would ultimately receive an amount of Rs. 25 billion as sale proceeds of state-owned enterprises.

An amount of Rs. 1.3 billion has been allocated out of the sale proceeds of the units, to social sector programme which includes education, health, rehabilitation and infrastructure development.

The present government was determined that Pakistan should enter the 21st. century as an industrially developed and self-reliant nation. The main planks of this comprehensive programme of economic transformation are privatisation, deregulation and liberalisation.

It is common knowledge that a well functioning legal framework is very important for a successful privatisation. Unfortunately Pakistan is still far off from developing such a legal system. The government has already provided legal protection to denationalisation and is actively considering giving constitutional protection to the economic reforms so that no future government could undo what has been done.

Chairman Privatisation Commission has claimed that news stories challenging the mythology employed by his commission were a bundle of lies, baseless and irresponsible.

He has claimed that the methodology was quite transparent and credible. Thus the efficacy of privatisation can hardly be questioned. There cannot be two opinions that nationalisation totally destroyed the economic fabric of the country. There is consensus that privatisation can raise output, increase employment opportunities and raise efficiency. In implementing privatisation policy, the government has taken care to ensure that the methodology is not geared towards concentration of wealth or preclude the public sector unit to the highest bidder. The Commission has seen to it that there is no control of a few sellers which allows them to raise prices above the market price. If there has been an abnormal rise in cement prices recently, it is attributable mainly to recent floods. Anyway a probe into the affair has been ordered by the Monopoly Control Authority. It clearly shows that there is no lack of will on the part of the Privatisation Commission to ensure fairness in the process.

In short, the Pakistan economy is going through great transformation at the moment. A decisive step has been taken towards wholesale privatisation of production, marketing and financing agencies in view of persistent shortfalls in output and profitability of public corporations. To pave the ground for smooth functioning of private sector agencies, deregulation and decentralisation of almost all major activities including investment, movement of foreign exchange and allocation of credit has taken place. Since the size of the public sector is being drastically cut, major responsibility for development now devolves on the private sector and for this purpose a host of facilities have been provided.

The rationale for privatisation has never been questioned. No one has criticised the government on the possible merits of the policy itself and it is agreed on all hands that privatisation leads to higher output through private initiative and sales the Exchequer that annual cash injections it had to make for the continued economic viability of public-owned corporations being run inefficiently and at a loss. It is also universally accepted that higher output implies more job opportunities and a higher Gross National Product growth rate which in turn would translate into a filter down effect whereby the poor would also be able to reap the fruits of privatisation.

Giving an overview of the economic performance of the present government in the last 20 months, the Federal Finance Minister recently said that the privatisation process had been implemented successfully with the co-operation of the workers of public sector enterprises. A total of 54 industrial units had been sold by August 1992 and actual management of 42 enterprises had already been transferred. The rest are to be privatised by the end of the year, he said. The total realised value of units sold is Rs. 10 billion. But the new owners have also assumed outstanding liabilities of about Rs. 19 billion. New areas like power, telecommunications, roads, port operations and shipping have also been opened to the private sector. Two nationalised banks - MCB and ABL - have already been privatised while the denationalisation of UBL and Habib Bank Limited is going to take place soon. The disinvestment of DFI's is already on the cards while PNSC is in the process of denationalisation.

Today, the economy is more open and deregulated including the private entrepreneurs to enhance investment and make more efficient use of resources. As a result, there has been a quantum jump in private investment. In the last two years, private sector investment rose by at least 48 per cent in response to government policies. Taking actual annual level of private investment, it has almost doubled from Rs. 64.2 billion to Rs. 113.6 billion in 1991-92.

Thus the year 1991-92 has witnessed successful implementation of the reforms package announced by the government. Since assuming office in November 1990. The privatisation of over 100 industrial units is in full swing and more than two-third of these have either been handed over to the private entrepreneurs or the deals are in the final stage. Two banks have been denationalised and over two dozen private commercial and investment bar have become operational. The move to offer hitherto public-controlled sector like airlines, shipping, airports, highways, power generation and transmission to the private sector has been well received. The policy of deregulation of sanctioning procedures and liberalisation of exchange and payments system have become operative and its impact is now being felt.

Federal Finance Minister Sartaj Aziz recently said that the IJI government had almost completed the first phase of reforms, mainly in the economic sphere and would embark on consolidating the gains in the next phase. He said that in order to come up to Asian Tigers level Pakistan would have to manage a GDP growth rate of 7 per cent which would be achievable if the investment rate increased to 22-25 per cent annually. In this connection, he emphasised the need for accelerated inflow of foreign direct investment and import of appropriate technology. Pakistan had missed the chance of becoming an Asian Tiver once in the early 70's where the annual average growth rate had shot up to over 7 per cent of 1960's was arrested and then reversed by the nationalisation process and then for the second time in the 1980s when instead of introducing the policies that were being introduced now, the government of the day resorted to tighter control of the economy and heavy borrowing.

'The opportunity has come our way for the third time and we must do it now by the year 2000', emphasised the Finance Minister. Privatisation has certainly paved the way for the accelerated growth of the economy and the day is not far off when the country will steal a march over such giants as Korea.

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Title Annotation:Pakistan
Author:Jabir, Rafique
Publication:Economic Review
Date:Nov 1, 1992
Words:1881
Previous Article:After the long march.
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