Washington (AFP) – Pakistan is hoping to finalize both the delayed privatization of its flag carrier and the outsourcing of Islamabad’s international airport in November, the country’s finance minister said Wednesday. Muhammad Aurangzeb, who took office earlier this year, spoke to AFP at the World Bank’s headquarters in Washington, where he is attending the annual meetings of the International Monetary Fund and the World Bank.
During a previous interview with AFP in April, Aurangzeb had said he hoped the privatization of the government-owned Pakistan International Airlines (PIA) could be completed by June 2024. Speaking Wednesday, the finance minister indicated that the five-month delay was due to two factors: ensuring macroeconomic stability and conducting proper due diligence of the interested parties. “The reality is, when any foreign investor comes in, or even the local investor, who are going to put in a substantial amount of money, they want to ensure that the foundation is there,” he said, referring to macroeconomic factors.
Aurangzeb noted that potential bidders for both PIA and Islamabad airport also required scrutiny, which contributed to the delay. “Therefore it’s ultimately the cabinet which approved the extension in the timelines so people can do their due diligence before they make these submissions,” he explained.
Brink of Default
Aurangzeb acknowledged that Pakistan had been behind on existing profit and dividend repayments when the current government took office, and outlined steps being taken to remedy this after making progress on macroeconomic stability. The country had come to the brink of default last year, as the economy shrank amid political chaos following catastrophic 2022 monsoon floods and decades of mismanagement, compounded by a global economic downturn. Inflation peaked at 38 percent but has since dropped to less than seven percent, following the central bank’s maintenance of high interest rates and other government tightening measures, including import bans to preserve foreign exchange.
Last month, the IMF approved a $7 billion loan, marking Pakistan’s 24th payout from the multilateral lender since 1958. Aurangzeb highlighted progress in the country’s current account deficit and the stabilization of the Pakistani rupee, which has depreciated against the US dollar by about 65 percent since 2020. “In May and June on the back of this macroeconomic stability and building up on our reserves, we paid more than $2 billion to our existing international investors,” he noted. Currently, Pakistan’s gross public debt stands at 69 percent of GDP, equating to roughly $258 billion, according to the IMF.
Saturation Point
In addition to privatizing state-owned enterprises (SOEs), the terms of Pakistan’s IMF deal also hinge on increasing its tax base and reforming the country’s power sector. Aurangzeb mentioned a shared theme among these three major issues: “Tax, power, SOE: There’s leakage, there’s theft, there’s corruption, right?” he stated, emphasizing the need to tackle these problems.
However, he dismissed media reports suggesting that the government was not serious about broadening its tax base. He pointed out that the tax take had increased by 29 percent in the last fiscal year, which overlapped with a prior caretaker government, and was targeted to rise by a further 40 percent in the current fiscal year. In a nation of more than 240 million people, where most jobs are in the informal sector, only 5.2 million people filed income tax returns in 2022.
“People who are not paying up, they need to start paying for the simple reason that we have reached a saturation point of the people who are paying,” he asserted. “The salaried class, the manufacturing industry, has reached a saturation point. And this cannot go forward,” he added. The government is also committed to improving tax collection in certain sectors of the economy, including real estate, retail, and agriculture.
© 2024 AFP
