Uzair bin Farid

The government of Pakistan has set aside Rs95.2 billion for “current investments through equity” in the ongoing fiscal year 2023-24. The government usually invests in profitable companies, mutual funds, banks and other institutions to earn dividends, which go on to increase its revenues. The total money allocated for equity investments in budget 2024 represents a 137% increase over the budgetary allocation for the previous fiscal year 2022-23 (FY23). In FY23, the total money for current equity investments was Rs40.1 billion. Of the Rs95.2 billion set for the current fiscal, a total of Rs82 billion of the loans of Power Holdings Limited (PHL) will be taken over by the government as public loans and the equity of the same value will be acquired by the government in the shares of PHL. It must be noted here that the government had made plans to take over the loans of PHL worth Rs800 billion and convert them to public debts from private debts earlier this year. The total debt stock of PHL surpassed the Rs1 trillion mark in 2020.

Subsequently, the Economic Coordination Committee (ECC) and the Finance Division had taken several steps and decided in a number of meetings to take over the loan of PHL. To that end, the government released funds in FY21, FY22 and FY23 to the tune of Rs72.63 billion, Rs130 billion and Rs35 billion to reduce the loans of PHL. It is in the same vein that the government has decided to take over the loans of PHL and convert them into equivalent equity investments in PHL so that in future, the government may be able to raise revenues from the PHL’s profits. The government will also invest Rs9.9 billion in Pakistan Mortgage Refinance Company Limited (PMRCL) and Rs3 billion as paid-up capital in the proposed Exim Bank of Pakistan. The government will also pay Rs180 billion as loan to Generation Company V (GENCO) and, in return, take over equivalent worth of equity.

A sum of Rs100 billion will also be invested as contribution in equity of Pak-China Investment Corporation Limited, Islamabad, and Rs12 billion will be utilised as Pakistan’s annual contribution to Inter-Governmental Group IF 24 (G-24). The government investments are only helpful if they yield dividends. If the government starts to take over the loans of already loss-making companies as equity, then it does not make for sound investment. The government must make sure that if its share in the equity of a company increases beyond a certain limit, then it must take action to turn around the performance of the company into a profitable enterprise. Otherwise, just taking over the loans of private holdings as equity, which are already under heaps of debt without any viable working model to repay them through their own revenues, makes for a bad investment choice.

Credit: INP-WealthPk