Volume 22 Issue 3, March 2018


It took five years the world of national economy’s circular debt segment to come full circle. Having been cleared amid much fanfare and photo-ops, the circular debt was worth just under Rs500 billion back in June 2013. The hydra-headed monster of circular debt is alive and kicking again at an over Rs500 billion mark. It does not take rocket science to know that till we get rid of this circular oddity, there is little chance of making any linear progress.

The irony inherent in this strangely circular cycle of circular debt is that it has all happened under a single regime. It had cleared the debt while blaming it on the mismanagement – perceived or actual – of preceding administrations. But before it could complete its own five-year term, it has accumulated a burden which is just heavy as before ... and then some more.

Today, the government is planning to raise money to clear at least some portion of it ahead of the scheduled elections that are months away. Since his appointment as Privatisation Minister, Daniyal Aziz was not quite forthcoming on this assigned task even though he had remained active in defending the government over just about anything and everything. He spoke on the task only recently when, in an interview with a foreign news agency, he said the government planned to privatise the Pakistan International Airlines (PIA) before the general elections that are due in the second part of the current year.

He said he planned to take his proposals to the cabinet committee on privatisation very soon as he had completed his homework in this regard.Under the proposed plan, which was initially conceived by his predecessor and the sitting Sindh Governor, Muhammad Zubair, the national carrier would be split into two companies and its core business would be sold to a global airline.

PIA, along with other loss-making entities, like Pakistan Steel Mill (PSM), is undoubtedly a big drain on the national exchequer as they are inflicting billions of dollars of losses every year and this was one of the top priorities of the Pakistan Muslim League-Nawaz (PML-N) when it came into power in 2013.

The accumulated losses by PIA have reached the tune of Rs319 billion while PSM is also looking for a hefty amount of Rs3 billion just to pay salaries to its staff. Along with 67 other entities, PIA was also to be privatised under the three-year 6.7 billion bailout package signed with the International Monetary Fund (IMF) in late 2013.

Loss-making entities like PIA and PSM do require drastic actions to revitalise them. The losses incurred by PIA as of now are coming close to the total circular debt of the country. Similarly, the financial situation of the PSM is also unsustainable.

But any half-cooked or hurried action could cause more harm than benefit. Therefore, the government needs to avoid another blunder. With the economy already passing through a very critical phase, any misadventure on serious matters like privatisation could backfire. Throughout its tenure, the government has been advising its opponents to avoid politicising economic matters. It looks strange that at the far end of its tenure, the government itself is sensitising an important issue having a major impact on the economy.

But this is how financial pressure works. With PIA carrying enough worth to wipe off the entire circular debt, it is understandable that the government would be keen to get rid of it in order to get rid of the circular debt in one go. That is as quick as it can hope to get out of the morass that circular debt represents. That the sitting prime minister himself has a business interest in the national aviation sector and that in itself is the equivalent of a conflict-of-interest situation is something for the purists to fight over. In the cut-throat world of corporate and political progress, things pan out as they do. It is at least understandable why the government is in a hurry to drop something as big as PIA like a hot potato.
Other than the privatisation option, the government is reportedly preparing another plan to clear the energy sector’s circular debt which is hovering around the Rs530 billion mark, piled due to the continuous poor performance of the power sector despite the creation of a new ministry i.e. the Ministry of Energy by clubbing together the Power Division and the Petroleum Division.

The new stock of Rs530 billion circular debt is over and above Rs430 billion already parked in the books of Power Holding Private Limited (PHPL) on behalf of power distribution companies (Discos) who are paying interest on the amount, which, in turn, implies that the overdue amount against the power sector stands at Rs 955 billion.

Back in 2013, the government had cleared Rs480 billion circular debt in circumstances and through a process which is still under discussion at different parliamentary forums. The office of the Auditor-General of Pakistan had also raised questions on the way the government had opted to clear the huge amount owed to the Independent Power Producers (IPPs).
Back in 2013, the economy was exactly like that of today as all the key economic indicators, including fiscal deficit, growth, inflation, foreign exchange reserves, external funding, exchange rate, circular debt and overall industrial and agricultural development were in an acute mess.

Today, it is pretty much the same ... and then some more. Revenue growth, which has gone down from 16 per cent to eight per cent, is surely a serious cause for concern. The tax-collection performance of the government is not the best in the world. The decline in non-tax revenue is another worry for the planners. Nobody knows how to deal with the issues. Nobody knows where to start at and what to start with. There are ideas and suggestions, but each of it has its own downside. Like, for instance, the privatisation of PIA. It will clear the circular debt in one go, but it will set in motion a few elements that will take us down the same road before we know it. From 2013 to 2018, we have seen it all. Do we want to see it all yet once again?

The writer is a free-lance contributor specializing in a wide spectrum of issues.

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