Govt may have to sell shares of state-owned assets to WB arm

ISLAMABAD: In return for the World Bank Group’s (WBG) assistance in breaking gridlock on low growth and low productivity, Pakistan may have to sell shares of state-owned entities (SOEs) to an arm of the international lender and approve non-discriminatory trade policies to normalise ties with India. The draft of the Country Partnership Strategy (CPS) 2015-19 sheds light on the plans WBG believes are necessary to take Pakistan out of the trap of low growth and low productivity. During the last five years, the average growth in Pakistan remained below 3% while the investment-to-national output ratio alarmingly dropped to 12%. The WBG is expected to approve the strategy on May 1, which Finance Minister Ishaq Dar has said will be ‘a new Pakistan day’. The bank will offer Pakistan $11 billion in five years and will be directly involved in formulating policies at the federal and provincial levels. The WB investment arm, the International Finance Corporation (IFC), may also buy stakes in some of the entities, which are up for grabs.

Without specifying the enterprises the WBG is interested in, the document reveals that as part of the strategy to reform SOEs, “the IFC will support the privatisation transactions in the financial and infrastructure sectors through strategic investments.” The policy matrix – a carrying set of milestones that the WB will target – also states that the IFC will make ‘direct investments’ and mobilise investors for the divestment of large bank shares. It was not immediately clear whether the IFC can buy shares in a public sector company. According to some government functionaries, it cannot make direct investments. Others argue the IFC can become a partner in a consortium of strategic investors. The WBG will push its agenda to get at least five state-owned entities restructured or privatised, at least three of which will be in the power sector. According to sources in the Ministry of Finance, the IFC is interested in making direct investments in the Lahore Electricity Supply Company (Lesco) and Faisalabad Electricity Supply Company (Fesco). The international lender will approve an at least $500 million loan under the Growth and Investment Programme in the first phase to accelerate the privatisation of these entities. It will also push for improving trade across borders and has set a goal for the development and approval of a ‘non-discriminatory policy on international trade’. The policy will be solely aimed at India, the only country that Pakistan recognises and does not freely trade with. To facilitate trade, the WBG will finance projects to reduce the average waiting time at the Karachi port and Wagah border by 20%. It will finance a trade facilitation and logistics project at Wagah border, the IFC intercity transport project and an IFC-funded freight train project. Under the CPS 2015-19 package, Pakistan will also have to approve a credit information law. The provincial governments of Punjab and Sindh will set up new courts to resolve commercial disputes. The key target for these actions is reducing the number of days required to start a business from 21 days to 11 days. To enhance productivity, the WBG will push for the elimination of Statutory Regulatory Orders to end distortive policies in the agriculture sector. It has designed projects to raise yields of major crops like wheat, cotton and paddy, by at least 20%. The group also plans to push for simplifying import tariffs. Tariff reform would reduce the average tariff rate to levels close to 10%, with reduced dispersion, and would pay off in the longer term by allowing all Pakistan’s producers to benefit from cheaper inputs, according to the draft CPS. Published in The Express Tribune, April 27th, 2014.