ISLAMABAD
At a time when Pakistan’s foreign currency reserves are under immense pressure due to dwindling exports, the government has signed a stringently conditioned $ 300 million loan agreement with the Asian Development Bank (ADB) for preparing the public sector entities for privatization.
The Public Sector Enterprises Reform Program loan agreement was signed by Secretary Economic Affairs Division (EAD) Tariq Mahmood Pasha and Country Director Asian Development Bank (ADB) Xiaohong Yang, here on Thursday.
An official source said, the government has assured ADB that implementation of subprogram would conform to all applicable ADB policies including those concerning anti-corruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the loan documents.
The government has agreed with ADB on fulfilling all the conditions which are set forth in the loan agreement. The government was forced to give assurance as ADB was not satisfied with the government’s commitment after implementation of first subprogram during 2014 to 2016 period.
ADB team in its assessment report for the first subprogram had mentioned that continued commitment of the government toward reform measures is not sustained. There was lack of counterpart funds to finance PSE reform costs. Privatization Commission capacity is not augmented in a timely manner. Inadequate coordination between the privatization commission, ministry of finance, line ministries and boards, and management of the PSEs has also been a pertinent problem.
It said the government has to undergo complete restructuring or privatization of House Building Finance Company and SME Bank and has to initiate the process of corporatisation of Postal Life Insurance and Pakistan Post Savings Bank.
The ministry of finance is mandated to establish an IT based PSE performance monitoring system and approved the IT systems architecture and implementation plan. Finance division will have to submit financial performance report for all federal government PSEs for FY2015 and FY2016 for review of the Economic Coordination Committee and will have to publish such report on its website, the report asked.
The federal government owns 191 PSEs, comprising 176 companies, 8 financial institutions, and 7 federal authorities, whose assets were estimated at Rs 9,400 billion in FY2014 and who employ more than 420,000 workers (of which Pakistan Railways employs 78,000).
While some PSEs report profits, most PSEs are poor performers reporting marginal profits or losses. As a result, PSEs rely on regular discretionary fiscal transfers and sovereign credit guarantees to maintain their operations. PIA, Pakistan Steel Mills, power distribution companies, and Pakistan Railways are major recipients of such transfers.
Many of these entities do not have appropriate accounting policies and audit and internal control procedures in place. The absence of timely and reliable financial statements points to the need for reforms to systematically enforce improvement of PSE financial management and internal controls, and to improve corporate governance under the supervision of the Securities and Exchange Commission of Pakistan (SECP). Many PSEs do not follow the SECP’s PSE CGRs. The program has introduced relevant policy actions to facilitate compliance with the PSE CGRs 2013.
A statement issued by finance division said the subprogram of the Public-Sector Enterprises Reform Program will help the government to achieve and sustain reform initiatives aimed at enhancing the performance of Public Sector Enterprises (PSEs) by improving their corporate governance and accountability, and reducing their contingent liabilities.
This second subprogram will facilitate creating fiscal space for critical development expenditures. It will facilitate government’s reform initiatives. ADB had approved first subprogram of the Programmatic Approach in June 2016.
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