Pakistan Railways restructuring: ADB set to approve $300m budgetary support loan

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ISLAMABAD: The Asian Development Bank (ADB) is set to approve $300 million budgetary support loan for Pakistan in the name of public sector reforms amid the country’s flagging commitment to privatise the loss-making entities.

The Board of Directors of the Manila-based lending agency will take up Pakistan’s request for $300 million loan next month that Finance Minister Ishaq Dar is eager to receive before June 30, said sources in the Finance Ministry.

As is the case with all budgetary support loans that focused on some Public Sector Enterprises (PSEs), this time Pakistan Railways will be at the centre of new loan package and it is required to take six policy actions including retrenchment of its workforce, according to the official documents.

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The $300 million loan will be the first tranche of $600 million loan that the ADB will give in the name of restructuring the PSEs during  the next two years.

“Privatisation is not the only solution, as the performance of the public sector enterprises can be improved by ensuring financial transparency and implementing good corporate governance,” said Werner Liepach, the Country Director of the ADB while talking to The Express Tribune. Liepach said that the $300 million reform programme would support the efforts of the government to improve performance of public sector enterprises.

Initially the size of the loan was $150 million that has been increased on the request of Pakistan due to its growing debt obligations, said the sources.

The programme will also help in identifying and reducing the contingent liabilities of the public sector enterprises, as the government is accused of concealing the actual liabilities, said the sources in the Finance Ministry.

Under the loan conditions, the government will be bound to allocate resources equivalent to about 0.4% of GDP for the development expenditures of the PSEs.

The ADB has noted that in current fiscal year 65% of federal bailouts were consumed in meeting current expenses, severely limiting critical capital development expenditures to improve their efficiency.

“Power distribution companies, Pakistan Steel Mills and Pakistan International Airlines need substantial upfront reforms and investment as well as efficient management of stakeholder interests before privatisation can materialise,” according to the programme documents.

Pakistan Railways

Pakistan Railways is not on the list of privatisation but requires alternative approaches for improving efficiency, service delivery and asset management as well as reducing contingent liabilities.

The ADB noted that the Railways liabilities have piled up due to maintaining non-core operations, large unfunded pension liabilities, poor revenue generation and poor financial management and internal controls. Liepach said that the ADB was quite pleased with the performance of the Railways in recent years and was willing to invest money for further improvements.

The federal government owns 191 PSEs having an asset base of Rs9.4 trillion in fiscal year 2013-14 and employing more than 420,000 workers.

The Pakistan Railways employees’ strength is 78,000. Pakistan Railways has been picked for retrenching the workforce and it is required to submit a workforce rationalisation plan by next month, according to the documents. The Railways would also digitise land asset database.

The ADB has cautioned that the success of the $300 million reform programme hinges on public awareness of the reform process and benefits and strong government commitment and adequate support from all the stakeholders.

The ADB is eyeing 20% increase in profits of the PSEs and the government’s dividend incomes in next two years as a result of its $300 million investment, which seems an uphill task.

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