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Cover Story

We can't keep on holding our breath

Nov 15 - 21, 1999

To bridge the gap between income and the expenditure is the real challenge faced by Pakistan's economy as well as by the government of the day.

The gap seems alarming specially against the backdrop of huge foreign debt amounting to $34 billion, infected bank loans swelled to Rs356 billion, declining exports which are hardly around $8 billion and a mess of public sector organizations which are dragging down the economy every day instead of giving a helping hand.

Various corrective measures have been announced by the new team to get rid of these economic ills on priority basis.

The government has taken a strong stand against the bank defaulters and has given them a deadline of Nov 16 to clear the backlog. The government may achieve the target through administrative and punitive measures against the defaulters and at least one of the corners of the economy may be rounded up to a great extent. However the administrative measures would do no good for other delicate issues such as restoring the investors confidence and capital formation which have been placed on top of the list by the Finance Minister Shaukat Aziz.

He has given top priorities to the restoration of investors confidence and capital formation in his seven-point agenda to start with the task of revival of the economy.

His other priority areas are:

* Greater resource mobilization by expanding tax net, plugging tax evasion, simplifying tax administration and improving the level of documentation of the economy.

* External sector would focus on increasing exports, discouraging non-essential imports, stabilizing exchange rate and inducing flow of remittances.

* Seeking lenders' help in lessening the burden of debt servicing.

* Revival of privatization to ensure retirement of public debt.

* Intensifying efforts for poverty alleviation and significantly increasing spending on social sectors.

The finance minister has confined the multi-dimensional policy of privatization of public sector enterprises for retirement of public debt alone. On the contrary, a transparent and clean process of privatization answers the problem of stagnant foreign investment in Pakistan, capital formation as well as making the burdensome public sector organizations not only economically viable but giving a strong support for rapid growth of economy by transferring them into deserving hands of professionals in the private sector.

It is a known fact that a large chunk of the direct foreign investment is being attracted through privatization of public sector entities elsewhere in the world.

Unfortunately Pakistan failed to achieve the desired results through disposal of public sector entities and attracting the foreign investment due to frequent shift in policies, political considerations, and mismanagement which shattered the confidence of the investors.

The power generation, transmission and distribution was entirely looked after by the public sector in Pakistan before privatizing a small portion of power generation in the private sector. When Pakistan invited the private sector to participate in power generation as much as 34 foreign as well as local investors applied out of which 11 were approved while the guarantee money of the remaining parties were confiscated by the government on account of their failure of meeting the financial close within stipulated time frame. Dejected with government's policy some of them sought legal protection locally as well as in the International Chambers. Going into litigation with the investors created an ugly situation and the foreign investment which was coming at a large scale specially in the energy sector was adversely affected.

Hubco-WAPDA tussle is the most glaring example for shattering the investors confidence: Hubco is no longer a national issue rather it has become an international issue with vast economic consequences for the country which is not limited to the balance sheets of Hubco and WAPDA alone, said Dr.Anjum Siddiqui, Senior Advisor and Economist of Hubco.

Dr. Anjum said not only the World Bank or IMF but also international lending institutions as well as Paris and London Club members are closely watching the Hubco-WAPDA negotiations. He pointed out that the two central issues facing the economy today are insufficient direct tax collection and the crisis of confidence, at the core of which lies the IPPs issue.

The WAPDA-Hubco arbitration took place on Nov 8 and Nov 9 in London under the International Chamber of Commerce (ICC) rules which was filed by Hubco and Energy Power Group against WAPDA on July 9, 1999. Hubco could not participate in this hearing because of the restraint order of the Sindh High Court given in an appeal brought by WAPDA. Commenting on the arbitration proceedings Dr.Anjum Siddiqui remarked that Hubco has a strong case and if WAPDA feels wronged it should use the agreed arbitration channel of dispute resolution to quickly settle the two year old commercial dispute. It would have been better if Hubco could participate, but we have confidence that the Supreme Court would restore Hubco's rights under the Power Purchase Agreement (PPA).

The new economic managers have yet to resolve the IPPs issue, it is however important that the issue is tackled in a manner that country finds back its image as a place where the investors could come without any fear of change in declared policies. It is a worldwide phenomenon that 50 per cent of the foreign investment is coming in the shape of participation in the privatization process of various countries.

As stated earlier that the privatization of public sector entities is a delicate issue which needs to be tackled professionally and in a calculated manner. Beside restoring the investors confidence, it is the responsibility of the economic managers to lookafter the interests of the employees of these organizations. Retirement of a large number of employees through golden handshake scheme would not serve the purpose. There should be a proper scheme to accommodate these retired personnels in various sectors of the economy because existence of large crop of the jobless people may add to socio-economic problems, it is feared.

According to analysis of the privatization of public sector entities and down-sizing of the government organizations over 40,000 people have been rendered out of job. A very few of them could get the job opportunities within or outside the country while a large number of them are relying on the returns of different fixed deposit schemes introduced by the banks.

Details of the retired employees

* Habib Bank 8,000 employees

* United Bank 5,416 employees

* National Bank 7,295 employees

* ADBP 1150 employees

* IDBP 353

* ICP 350

* NIT 162

* NDFC 363

* SSGCL 4162

* RECP 3000

* CEC 1100

Government Departments

* Federal Cabinet Division 159

* Federal National Documentation 19

* Research & Reference Wing (Karachi-Lahore) 20

* Federal Land Commission 58

* Communication Security Department 28

* National Calligraphy Pakistan 25

* Federal Ministry for Culture, Sports and Youth Affairs 80

* Defence Division 80

* Survey of Pakistan 1049

* Meteorological Deptt 31

* Pakistan Military Accounts 1435

* Medical Directorate(GHQ) 166

* Military Land & Cantonment 317

* Production Division (Defence) 63

* PAC Kamra Hospital 46

* AMF Kamra 81

* Federal Ministry for Education 111

* Federal Directorate Education 167

* Federal College Education 84

* Federal Economics Division 71

* Election Commission of Pakistan 324

* Federal Establishment Division 62

* Federal Tribunal Service 23

* Secretariat Training Institute 23

* Environment, Rural Development & Local government 137

* Finance Division (Federal) 137

* Privatization Commission 9

* Treasury Office (Federal) 22

* Central Claim Organization 5

* Income Tax Establishment Division Commission 3

* Monopoly Control Authority 33

* Pakistan Mint Deptt. 291

* National Saving 104

* Corporate Law Authority 44

* Central Board of Revenue 56

* Directorate Research- Statistics

* Ministry of Foreign Affairs 24

* Ministry of Production 92

* Ministry of Interior and Anti-Narcotics 133

* Directorate General Immigration & Passport 66

* Directorate General Civil Defence 18

* Civil Defence Academy 18

* Bomb Disposal Unit 14

* Civil Defence School Lahore 15

* Civil Defence School Karachi 16

* Civil Defence School Peshawar 15

* Civil Defence School Quetta 14

* Kashmir/Northern Areas and Frontier Division 62

* Law, Justice, Human Rights and Parliamentary Affairs 187

* President Secretariat 56

* Prime Minister Secretariat 41

* Prime Minister Implementation Commission 37

* Statistics Division 674

* Ministry of Water & Power 27

* Indus Water Commission 9

* Federal Ombudsman(Secretariat) 132

* Women Development, Social Welfare/Special Education 257

* Science and Technology 32

* Ministry of Communication 26

* AGPR 152

* Ministry of Commerce 100

* Pakistan Television 120


The Economic Advisory Board set up by the government with Finance Minister Shaukat Aziz as its Chairman, has been assigned the task to formulate and review economic policies and performance. Experts in their respective fields have been included in this board. People are attaching hopes that they would give their best to bring economic prosperity to the country. They are including Syed Babar Ali, Dr.Hafiz Pasha, Zafar A. Khan, Shahid Kardar, Jehangir Siddiqui, Dr. Arshad Zaman, Altaf Saleem, Bashir A Mohammad, Shahid Haq, Abdullah I.Memon, Azam Farooque and Aziz Luni. The board will identify issues afflicting the economy as well as factors responsible for the state of the economy. Identify practical solutions and recommend measures for important economic issues to be incorporated in the economic policy of the government.

Since the Chief Executive Gen. Pervez Musharraf in his address to the nation had stated that the government would strengthen the public sector organizations, while Finance Minister Shaukat Aziz has put the privatization of public sector entities on his priority list, there prevails a confusion about the continuation of privatization process in Pakistan.

Chief Executive Gen. Pervez Musharraf while addressing the nation said that his government would prefer to strengthen the public sector rather than pursuing the disinvestment process as had been the case in the past.

While finance minister has categorically made it clear that the government wants to continue the economic policies including privatization of the public sector organizations, yet it is the responsibility of the Economic Advisory Board to elaborate the government's point of view on this issue.


The privatization of the public sector entities has been included in 7-priority areas by Finance Minister Shaukat Aziz yet it is not clear that from where the new economic managers would pick the dropped story of privatization. As the change in the government and the much publicized recovery drive of the stuck up loans of the banking sector has pushed all other matters behind the scene.

It is, however, generally believed that international donors specially the IMF and the World Bank who have always been pressurising the government for liberalization and privatization of the economy would not lend a supporting hand to the new set up if the privatization process was not restarted.

Time and again the governments in Pakistan were told that one way to attract direct foreign investment was to privatize the state sector but in a real transparent manner. The previous governments have repeatedly claimed that sale proceeds received out of the privatization will be used for debt retirement, however people who are the real owner of these assets were never taken into confidence by any government. The former governments also betrayed the confidence of the people by utilizing $11 billion foreign currency bank deposits without taking them into confidence. It only came to light when they freezed foreign currency accounts on May 28, 1998. Similarly, the sale proceeds of privatization were used by the previous government for their lavish style of ruling the people instead of off-loading the burden of foreign debt.

Revival of the economy is of the vital importance at this stage to ensure our sovereign independence. Though it is a Herculean task but with a consensus to work collectively on war footings to clear the economic mess can hel achieve the goal. We can do it through national zeal and steps to restore the confidence of foreign investors in Pakistan.

The US Ambassador in Pakistan has recently demanded of the new government to privatize public sector organizations like Pakistan Steel, WAPDA, KESC and other organizations which have assumed a role of white elephant for Pakistan's economy.

Apart from his argument, the new economic managers will have to take an objective view of the situation and to assess how far these public sector organizations are helpful for national economy.

Large number of appointments in the public sector organizations on political considerations by different governments in the past have destroyed the working system to the lowest ebb. The rampant corruption in these public sector entities not only has produced a crop of lethargic and inefficient people who have already eroded the entire concept of public service and welfare.

There have been 5 major transactions which were almost ready for privatization. They are including Pakistan Telecommunication Corporation Ltd, Karachi Electric Supply Corporation, Habib Bank Ltd, remaining shares of Allied Bank Ltd and the MCB. The Privatization Commission has spent a considerable amount for hiring financial advisors from abroad for privatization of these organizations. Since the new government has come with a clear mandate to weed out corruption and revive the economy at least organization like KESC, PTCL or WAPDA which have miserably failed to the expectations of the customers should be given into private hands.


While transferring the management power of these public sector entities experience of the past should also be taken into consideration.

The privatization process in Pakistan could not become a success unless transparency free from political and other bias in the real sense is maintained both in public sector entities and services. The post privatization output of the former public sector organizations should also be taken into consideration before going ahead for privatization organizations.

Since across the board accountability has been firmly declared by the new government, a detailed review of the utilization of sale proceeds amounting to Rs65 billion received by Nawaz Sharif Government should be thouroughly examined. Since these assets belonged to the nation, people have every right to know on what account this amount was spent by the rulers.

The current situation is however not conducive for carrying out the privatization programme as the recovery drive launched by the government and the deadline of Nov 16 for repayment has arrested the attention of everybody.

This is the time to diagnose illness and cure the ailing economy and to restore the confidence not only of the foreign investors but also of the local investors who are the real strength of this country.