Amir Khan

Pakistan’s deep-rooted interest in privatisation is influenced by both internal and external factors, with a significant impact from the International Monetary Fund (IMF) on the country's policymaking decisions, said Dr. Idrees Khawaja, CEO of Taleeminfo.PK, in an interview with WealthPK. “Internally, the push for privatisation is fuelled by three main factors. First, concerns about the fiscal situation persist, as government deficits pose a continuous challenge. The belief that public enterprises' losses contribute significantly to these deficits has led to the idea that a privatization program could alleviate fiscal pressures. “Secondly, ideological shifts in economic thinking, particularly in late 1980s, emphasize the market's efficacy and the need to reduce the state's power. This perspective aligns with ongoing debates on the ideal form of an Islamic economic system.”

“Third, internal pressure comes from the business community, driven by the potential for substantial financial gains through privatisation transactions,” he explained. However, Khawaja suggested that relying solely on privatisation might not yield the promised efficiency gains. The private sector's dependence on subsidies, including export subsidies, energy subsidies, tax exemptions, and protection, raises concerns about its self-sufficiency. Moreover, the concentration of ownership among a few influential families in the private sector could undermine competition and introduce inefficiencies. The family ownership structure, highlighted in a report by the Pakistan Institute of Development Economics (PIDE), reveals a lack of true competitiveness.

“The financial sector unveils a structure resembling monopolistic markets more than competitive ones. Despite being privatised in the 1990s, a small number of commercial banks dominated the sector, leading to a lack of innovation and limited competition. This situation hampers the sector's ability to provide better and more affordable services to the private sector,” he highlighted. The argument for privatisation in Pakistan is further complicated by the fact that the enterprises are often found in sectors with limited scale economies, where only a few firms can thrive. This raises doubts about the gains in allocative efficiency from privatisation, emphasizing the need for regulatory reform alongside privatisation.

Advocates of privatisation argue that public enterprises are more prone to internal inefficiencies, but the success of privatisation in enhancing efficiency depends on fostering increased competition. Unfortunately, prevalence of numerous firms in almost all industries creates room for monopolistic competition, challenging the expected gains.In conclusion, Dr. Idrees suggested that privatisation alone is insufficient to address Pakistan's challenges. A comprehensive strategy involving robust regulatory and structural reforms, coupled with an improved incentive framework, is deemed crucial.

This integrated approach aims to support the growth of small and medium enterprises, encouraging a dynamic entrepreneurial landscape that harnesses the full potential of privatisation, driving heightened competition, and delivering improvements in productivity and allocative efficiency.

Credit: INP-WealthPk