Impact of Privatisation on Overall Economic Trends

By Ali, Muhammad Imtiaz | Economic Review, November 1997 | Go to article overview

Impact of Privatisation on Overall Economic Trends


Ali, Muhammad Imtiaz, Economic Review


It is important to recognise that privatisation itself cannot result in an immediate improvement in the overall economic scenario. Fundamental macro-economic constraints such as large fiscal and external account deficit, high rate of inflation, and interest rates, declining currency rates, bear greater impact on economic performance resulting from privatisation.

A review of the Pakistan's economic performance in vital sectors reflects slowdown and sluggish conditions in the overall economic trends. The outgoing financial year (1996-97) was one of the worst years in the economic history of the country when all major economic indicators dropped alarmingly, showing sign of stagflation in the economy, as witnessed by the Economic Survey 1996-97 which indicates that all key economic indicators registered a slump during the year.

Keeping in view the deteriorating picture of the economy the present Government of Mr. Nawaz Sharif took some major steps to put the economy back on the path of stabilization and improve overall economic trends of the country.

The lack of a desired pick-up in the economic activity despite the recent concessions in the economic packages announced by the government including cuts in direct taxes and custom duties on imports etc., is indeed a cause of concern and certainly not in consonance with the high hopes raised in this regard.

Moodys, famous international rating agency is reported to have indicated some improvement in Pakistan's external trade figures in context of the various related ratios, in a recent review of the Pakistan's economy for the current financial year. Nevertheless, Moody's continued to discern some distributing aspects such as rise in inflation from last year's 13 per cent to 15 per cent and increased in foreign debt burden to an estimated $40.665 billion.

It may be observed that although despite some satisfying feature to arrest the deteriorating trend in the country's external balance, the overall situation will continue to be disturbing as ever.

As a result, the problem of trade deficit and current account deficit, is likely to persist with consequent resource gap in the country's foreign exchange reserve position, besides the prevailing stagflation, with the large scale manufacturing hardly recording any growth and exports remaining poor, which is far below the target of 15 per cent.

Most of the third world developing governments like Pakistan, are confronting the challenge of costly public programmes, bureaucratic inefficiencies, mismanagement and economic stagnation, by turning to the private sector for sustaining the deteriorating economy.

De-regulation and privatisation were the two most significant items of the economic agenda launched by the first Nawaz Sharif government in 1990, with that view they establish a privatisation commission (PC) in 1991 to handle the entire process of privatisation in the country. The second Nawaz Sharif Government continue their intention of expanding and accelerating the process of privatisation further in the country.

The privatisation commission (PC) since its establishment has sold 87 units out of targeted 118 units. Out of the units so far privatised, full payments have been received of 50 units only the remaining 37 units are expected to clear their dues by the end of 1998. The total amount accrued by the Government from privatisation so far is Rs.50 billion, of which only Rs.14 billion has been used for debt retirement. The Government has undertaken privatisation programme with the following objectives:

* To check drain of financial resources through growing losses suffered by the public sector white elephants including Banks/DFIs etc. …

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Impact of Privatisation on Overall Economic Trends
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