Prime Minister Shehbaz Sharif’s putting profitable State-Owned Enterprises up for sale may reflect a change in orientation. The main argument for the privatization of SOEs was that they were a drain the public exchequer, at least those that were making a loss, because that loss was being picked up by the taxpayer. The problem with loss-making SOEs was not mere inefficiency, resulting from the state mishandling the business of business, but that some of them were providing services that had to be provided, even if losses had to be incurred. The theory goes that loss-making SOEs might make a profit if they were placed in private hands, while profitable SOEs would make greater profits.
If state finances are parlous enough to need an end to the bleeding of loss-making SOEs, why does the state want to forgo the revenue in the shape of profits from profitable SOEs? For a start, they would be easier to sell, for two reasons. For one, they would not be encumbered with the debt needed to cover losses, and for another, the new owner would need to do nothing different to make a profit. In other words, they would be easier to sell. This gives the impression that government finances are beyond merely needing to stop the bleeding caused by losses, and cash is urgently needed, even if it means selling off the family silver.
The problem with selling off any assets, let alone profitable ones, is that it can only be done once. If the money is used just to make ends meet, that is only something temporary. That has been the fate of all previous privatization proceeds. They were used to meet debt servicing obligations, but that has not made the debt servicing obligations go away. Indeed, they have ballooned. Though the government does not, as the Prime Minister told a visiting Saudi delegation very recently, have any business in business, unless there is a more imaginative means of using privatization proceeds that merely making a couple of debt servicing payments, the government would do well to examine not just the list of companies it wants to privatize, but also examine innovative solutions, based on the public-private partnership model, for all enterprises. The government should realize that when all the SOEs are gone, it will have nothing left to sell, and no means of paying off the debts that have been incurred so far.
