Loss-making enterprises adding to govt debt, warns World Bank
The total liabilities of the state-owned enterprises (SOEs) that made a loss in three out of the five past years have been about 8 to 12 per cent of GDP in recent years, several times more than the country's public spending on education in 2019-20.
Describing the percentage liabilities to GDP as 'remarkably high', the World Bank report, "Hidden Debt: Solutions to Avert the Next Financial Crisis in South Asia" points out that Pakistan's SOE sector also shows a tendency toward rapidly declining profitability in recent years, with its net income dropping at an annual rate of 57pc on average from 2014 to 2017.South Asian SOEs are concentrated in energy, utilities, transport, and telecommunications. This concentration is most stark in the case of Pakistan, where the energy and transport sectors together account for 95 per cent of SOE revenues.
South Asia is more exposed to the risk of "hidden debt" from state-owned commercial banks (SOCBs), state-owned enterprises (SOEs) and publicprivate partnerships (PPPs) because of its greater reliance on them compared regions.
Governments often promise SOEs subsidies to run programmes such as advancing access to electricity to underserved populations and small enterprises. The SOCBs are asked to run government programmes to promote financial inclusion or lend to underserved or riskier small and medium enterprises, often without compensation for losses that private markets avoid.
The SOE sector in both India and Pakistan is more than twice as large as the international benchmark, controlling for size of the economy. Overall, India and Pakistan are among the biggest users of public agents such as the SOEs, SOCBs, and PPPs.
Non-financial state-owned enterprises have a large footprint in South Asia. Total SOE revenues amount to nearly 8pc of GDP in Sri Lanka, 12pc in Pakistan, and 19pc in India.
The total number of the SOEs exceeds 200 in Pakistan, 400 in Sri Lanka, and 1,300 in India. Although present in nearly all sectors of the economy, they concentrate in the energy, transport, utilities, and trading sectors.
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has approved a loan of USD 800 million to cash-strapped Pakistan, financing schemes on clean energy and human capital development, according to a Pakistani media report.
The loan amount would be utilised for schemes which are not covered due to the budget deficit for 2021-22 fiscal, Pakistan's The Express Tribune newspaper reported.
The board of directors of World Bank approved financing for two programmes - Pakistan Program for Affordable and Clean Energy (PACE) and Securing Human Investments to Foster Transformation (SHIFT-II).
Citing the World Bank documents, the newspaper reported that the board approved the USD 400 million PACE loan only after the government accepted at least six pre-conditions - ensuring reduction in power generation cost, competitive bidding for all new power generation projects, shift to clean energy, Rs1.95-per-unit increase in electricity tariffs, reduction in circular debt and appointing independent boards of power distribution companies.
The PACE programme prioritises actions needed to initiate critical power sector reforms focused on reducing power generation costs, better targeting of subsidies and tariffs for consumers.
The World Bank also approved USD 400 million for
SHIFT-II which supports a federal structure to strengthen basic service delivery for human capital accumulation.
The programme would help improve health and education services, increase income-generation opportunities for the poor, and promote inclusive economic growth, said the World Bank.
The SHIFT-II reforms increase budget reliability for sustainable financing of child immunisation and quality primary healthcare programmes, promote student attendance especially for children who are out of school due to COVID-19-related closures and support data-driven decision-making.
"The reforms underpinning PACE and SHIFT can contribute to facilitating sustainable investments and generate welfare gains for those most in need," said World Bank Country Director, Pakistan, Najy Benhassine.
Pakistan's economic crises have further worsened due to the COVID-19 pandemic and Prime Minister Imran Khan's government is arranging finances from world bodies, including the International Monetary Fund, to tide over the crisis.