The Asian Development Bank (ADB) has approved a $600 million loan program, with a first subprogram of $300 million, to help Pakistan roll out major structural reforms to improve the performance and financial sustainability of its public sector enterprises.
“Many large public sector enterprises rely on fiscal transfers from the federal government just to run their day-to-day operations, and there is no available funding for longer term capital spending and development,” said Werner Liepach, Country Director for ADB’s Pakistan Resident Mission. “This assistance will give the government the ‘fiscal breathing space’ it needs to proceed with measures to create more sustainable businesses, delivering more efficient and cost-effective services to the Pakistani public, and will eventually free up public funds for vital social sector spending.”
The federal government owns 191 public sector enterprises employing around 420,000 workers. A fiscal consolidation drive to improve federal finances has constrained the federal government from carrying out important reforms related to the public sector enterprises, including a reduction in contingent liabilities from pensions and other related costs. Among enterprises that need immediate financial support for initiating important reforms are power distribution companies and Pakistan Railways.
The full program will help the government draw up and roll out a comprehensive reform plan to improve the financial transparency of public sector enterprises and to strengthen their corporate governance. It will include support to establish a retirement cost fund to manage huge unfunded pensions and other retirement liabilities of workers. Unfunded pension risk presents a serious threat to the financial health of the enterprises.
Measures to strengthen auditing, accounting and other elements of operations at Pakistan Railways will also be supported by the program, along with actions to improve the performance of federal financial sector entities to boost financial inclusion in the country.
The program is part of a broader, coordinated donors package for public sector enterprise reforms, with other assistance being provided by the International Monetary Fund and the World Bank. The program loans will be extended in two equal subprograms of $300 million each, with the first subprogram running for a year to June 2017 and the full program finishing in June 2018.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB in December 2016 will mark 50 years of development partnership in the region. It is owned by 67 members—48 from the region. In 2015, ADB assistance totaled $27.2 billion, including cofinancing of $10.7 billion.