Should the Pakistani Government Privatise SOEs?
While privatisation has its own advantages, it also has many disadvantages.
In my previous article, I discussed the Pakistani government’s decision to privatise seven entities in 2020. Today, I want to focus on the impact of privatisation of State Owned Enterprises (SOEs) .
Usually, SOEs are sold off to private sector so that the government can not only receive funds, but also to ensure that the enterprises can start to aim towards profit making decisions. However, this decision can also have its drawbacks.
Why should we not privatise?
The aims for SOEs are generally to ensure that welfare remains within the economy, as private sector only focuses on cost minimisation and profit maximisation. The public sector focuses on producing goods and services which may not be profit oriented but are needed by society. In Pakistan, where unemployment is already considered high, privatisation is going to most likely reduce the number of employed people in Pakistan.
Moreover, in the case of Pakistan, we should also consider the impact there would be when other parties, such as China in CPEC, may feel that we are not reliable with our decisions. Recently, Pakistan Steel Mills was withdrawn from the CPEC framework. This was done as the government plans to privatise the organisation. Such decisions would only lead to China being more careful when signing any deals with our government.
In addition to the aforementioned points, how does the government plan to earn consistent revenue if it privatises many of the SOEs? Tax is only one of the tools used to earn revenues, and cannot be used to cover all of the government spending.
While privatisation does have its own advantages, the question narrows down to the cost-benefit analysis. Will the externality be in the favor of having an SOE or in the favor of privatisation?
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