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The bitter pill of privatization for Pakistan.

Muhammad WaqasPakistan's recently elected Pakistan Muslim League-Nawaz government is sticking to its reputation of pushing ahead with privatization drives. Nawaz Sharif, the country's premier, has announced that the government is in the process of finalizing plans to enter fourth phase of privatization of state-owned enterprises (SOEs). Till 2008, Pakistan has sold off 167 SOEs in banking, petroleum and energy sectors of the economy. Sharif is credited with partial privatization of banks in 1992-1996, and then complete denationalization of the banking sector. Government sources suggest that now more than 23 loss-making companies will go under the hammer in an attempt to support a struggling economy. However, the road to privatization is likely to be bumpy and pose significant challenges to the new government.

While economists unanimously back the government's decision, they also note that Pakistan needs a sound privatization policy that is coherent with the country's overall economic policy. In the past, privatization has been viewed as a panacea to revive an ailing economy. Historically, Pakistan has sold off public sector companies to finance fiscal deficits rather than as part of a broader economic reform program. Privatization has also often come under attack for being non-transparent and concentrating wealth in the country. Liberalization of the economy has in the past benefited only wealthy industrialists, who often belong to the ruling elite. Given Pakistan's current socioeconomic condition, further widening of the wealth gap may spark protests and civil unrest.

The fresh wave of privatization will render several thousands of workers jobless and create massive unemployment in the country. The main opposition party of PPP has already warned the government of mass protests across the country if it pushes ahead with the privatization plans. Parties opposed to the privatization agenda argue that basic rights of labor are trampled upon after the process of denationalization. Therefore, the government must be prepared to shoulder the responsibility of bearing the high social cost of privatization.

The Sharif-led government is also expected to face a tough time convincing his countrymen that the privatization program is not driven by IMF conditions. While it is true that the IMF approved a new bailout package worth $6.6 billion for Pakistan on the promise of far-reaching economic reforms, the government needs to promote privatization as need of the hour. Considering Pakistan's weak financial position, the state is in no position to further carry the burden of these highly overstaffed, inefficient and corrupt enterprises. At the same time, the unimpressive performance of privatized units may raise further eyebrows. For instance, Karachi's electric supply company has failed to ensure uninterrupted power supply and make improvements in infrastructure even after its privatization.

Nonetheless, Pakistan may have little choice but to swallow the bitter pill of privatization. The government should show its resolve in improving the financial stability of Pakistan's economy so that foreign investors may place attractive bids for these SOEs. To stir foreign interest in the economy, the government also has to focus on restoring law and order in the country. Although the process of privatization may pose tough challenges, it must be carried out on a fast track basis in an open and transparent manner.

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Publication:Arab News (Jeddah, Saudi Arabia)
Geographic Code:9PAKI
Date:Oct 21, 2013
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