Daily Times

The efforts to reform state-owned enterprises (SOEs) continue to enjoy precedence over the idea of privatisation in Pakistan. Due to economic strain, poor governance and political instability, the government has been unable to reform SOEs, resulting in increasing public sector debt and fiscal deficits. SOEs have become a burden on the state and threaten economic sustainability. According to Dr Shamshad Akhtar, a renowned economist, most of the SOEs in Pakistan have badly failed to deliver services. Currently, the annual losses faced by SOEs stand at Rs 500 billion, requiring a complete restructuring, privatisation, or liquidation of these entities.

While privatisation is not an appealing solution in Pakistan’s bureaucratic circles, public-private partnership (PPP) can be an effective middle way to solve the problem of failing SOEs, restore economic sustainability, and undermine potential national disintegration. Financial constraints and lack of resources limit the government from undertaking public welfare programmes or launching new investment ventures. PPPs present an effective solution, empowering governments to enhance their fiscal capacity and provide infrastructure/services to the public by leveraging the resources, expertise and technical competence of the private sector.

Moreover, PPPs have proven to be an effective tool in bridging the resource-demand gap and increasing public accessibility of quality goods and services. For example, since the 1990s, South Korea has adopted the PPP model for the development of social infrastructure, with more than two-thirds of social infrastructure projects completed under PPPs.

Since the 1990s, South Korea has adopted the PPP model for the development of social infrastructure, with more than two-thirds of social infrastructure projects completed under PPPs.

Pakistan is a mixed economy, with private and state-run businesses regulated by government policy. Hence, PPPs can help Pakistan navigate through a precarious economic situation. For that, it is important to address the challenges facing PPPs in Pakistan.

Firstly, the configuration of Pakistan’s PPP system has been influenced by the Malaysian model, where state-owned enterprises serve as concessionaries. The constitutional developments in Pakistan have contributed to the relative maturity of the PPP market, but most of the PPP endeavours have been concentrated at the provincial level. While the Public-Private Partnership Authority (P3A) functions at the federal level, each province has its own PPP framework and so, the projects are subjected to provincial laws and regulations. This results in poor accountability, regulatory uncertainty and lack of coordination, hampering progress and development.

Secondly, the government PPP policy principally focuses on transport infrastructure and the energy sector. There are several other sectors such as agriculture, healthcare, education, information technology, etc. where PPPs can provide resources and expertise for large-scale development projects. Thus, the government needs to reformulate its PPP policy to expand the targeted sectors and make it an inclusive framework.

Thirdly, political instability and interference challenge the positive and timely outcome of PPP agreements. For example, the M9 motorway, also known as the Karachi-Hyderabad motorway, a construction project, for which financing proposals began in 2005, was only successfully concluded in 2015 due to inconsistent policies and political pressures. This 10-year gap not only led to an escalation in project costs from Rs 7 billion to Rs 36 billion but also caused a significant delay in regional connectivity and economic return. This highlights the interdependence between politics and the economy, showing how political stability is key to economic progress in a developing country like Pakistan.

Moreover, there is a lack of long-term debt financing mechanisms in Pakistan. Most commercial banks only offer short to medium-term debt financing due to the uncertainty of returns and the absence of any dispute resolution mechanism in the government’s PPP framework. This way, shorter repayment periods reduce the financial viability of PPPs and cause financing delays. Addressing these challenges is crucial to increasing PPP attraction in Pakistan.

Balochistan makes an interesting case for PPPs in Pakistan, essentially for the development of Gwadar under the CPEC Phase II. The Balochistan Public Private Partnership Act 2021 seeks to foster a competitive environment for private sector participation in infrastructure development and related services projects in Gwadar. In March 2023, the government of Balochistan signed its first PPP in the education sector to provide Balochis access to technical education and vocational training.

Similarly, there is a need to attract PPPs in other sectors to facilitate rapid development in the less-developed Balochistan province but the challenges of poor coordination with the federal government, political instability and problems of debt financing persist. Consequently, Balochistan-based private businesses and companies are included in Gwadar development on a very small scale. It is the need of the hour to involve private companies and individuals directly in government initiatives through PPPs, ensuring that the interests of the government and local community align.

Overall, to protect Pakistan from national fragmentation and discord, there needs to be a well-thought-out and planned economic direction. PPPs are key to improving Pakistan’s economic sustainability and can also play a crucial role in bringing political stability and social harmony. Pakistan’s policymakers need to urgently address the challenges facing the PPPs to reap their economic and socio-political advantages and lead the country towards national integration.

The writer is a researcher at the Centre for Aerospace and Security Studies (CASS), Lahore, Pakistan. She can be reached at info@casslhr.com