Privatization of Public Entities: A Sign of Failure or Strategic Adaptation?

 Privatization of Public Entities: A Sign of Failure or Strategic Adaptation?

Mubasher Mir

Privatization—the transfer of ownership or control of public enterprises from the state to private hands—has long been one of the most contested economic reforms in developing countries. Advocates hail it as a tool for efficiency, investment, and fiscal relief; critics condemn it as a confession of failure, where governments admit they can no longer manage their own institutions. In Pakistan’s case, the truth lies somewhere in between: privatization reflects both systemic governance weaknesses and a pragmatic adaptation to fiscal and managerial realities.

From Nationalization to Privatization: A Historical Pendulum

Pakistan’s economic history reads like a pendulum swing between state control and market liberalization. In the 1970s, under Zulfiqar Ali Bhutto’s socialist vision, sweeping nationalization brought banks, industries, and utilities under state ownership. By the early 1980s, more than 200 state-owned enterprises (SOEs) dominated the economy. The intent was social equity, but inefficiency, overstaffing, and political interference soon followed.

By the early 1990s, the tide turned. Facing growing fiscal deficits and pressure from international lenders, Pakistan launched its first major privatization program. The Privatisation Commission of Pakistan (established in 1991) oversaw 132 transactions by 2003, generating roughly Rs 395 billion in proceeds. Yet, as Dawn later noted, few of these divestments produced sustainable improvements. Many privatized entities remained loss-making or were resold amid corruption controversies.

A 2022 study found that Pakistan’s 88 commercially operating SOEs still posted cumulative losses exceeding Rs 730 billion—a staggering drag on the national budget. Even after three decades of privatization, the government continues to pour subsidies into inefficient enterprises. This persistent pattern raises a hard question: has privatization solved the problem, or merely postponed reform?

The Current Drive: A Fiscal Imperative

Privatization has re-entered Pakistan’s economic agenda not as a bold policy innovation, but as a necessity. The country’s fiscal crisis—ballooning debt, IMF conditions, and circular debt in the energy sector—has revived interest in divesting state-owned assets.

In the 2025-26 federal budget, the government projected privatization proceeds of Rs 86.5 billion, nearly ten times higher than the previous year’s estimate of Rs 8 billion. Officials have identified over 50 SOEs slated for sale within the next three to four years, including Pakistan International Airlines (PIA), electricity distribution companies (DISCOs), and large industrial units. Yet, IMF data shows that no major privatization proceeds have materialized since 2019-20, underscoring persistent bottlenecks in execution and political resistance.

The argument for privatization today is largely fiscal: to cut losses, reduce subsidies, and attract foreign investment. According to the Centreline Economic Review, privatizing PIA alone could save Rs 800 billion in debt and eliminate annual subsidies of nearly Rs 300 billion. Similarly, reforming or selling power distribution companies could save an estimated Rs 500 billion annually by cutting theft and inefficiency.

These numbers are compelling. But privatization is not just an economic exercise—it is a political and governance test of the state’s ability to reform responsibly.

The Case for Privatization: Strategic Adaptation and Efficiency Gains

Privatization, when executed under transparent and competitive conditions, can be a strategic adaptation rather than an admission of defeat. It allows governments to focus on core responsibilities—security, justice, education, and infrastructure—while letting market-driven actors manage commercial risks.

 Fiscal Relief and Focus on Core Governance

Pakistan’s SOEs are a massive fiscal liability. Between 2018 and 2023, their cumulative annual losses averaged over Rs 500 billion, while government bailouts and guarantees for these entities further strained public finances. Divesting such enterprises could release fiscal space for health, education, and infrastructure.

The idea isn’t to shrink the state’s moral responsibility but to make it more effective by focusing on governance rather than business. As a 2024 Brookings report observed globally, “privatization succeeds when it enables the state to govern better, not merely to govern less.”

Evidence of Improved Efficiency

Some Pakistani cases demonstrate genuine efficiency gains. The privatization of Karachi Electric (K-Electric), once a chronically loss-making power utility, is a prime example. After privatization, its transmission and distribution losses dropped from 34% to 15%, tax payments increased, and service reliability improved. Despite controversies, the operational turnaround illustrates that private ownership can drive reform—provided regulation is sound.

Similarly, the telecom sector, once dominated by state monopoly PTCL, witnessed explosive growth after liberalization and partial privatization. Mobile penetration surged from under 3 million users in 2001 to over 190 million by 2025. In this sense, privatization catalyzed innovation and accessibility rather than decline.

 Attracting Private Investment

Pakistan’s private sector now accounts for over 80% of total investment in telecommunications, banking, and power. The privatization of banks in the 1990s, including Allied Bank and United Bank Limited, not only reduced fiscal exposure but transformed the financial sector into a more competitive and profitable industry.

When properly managed, privatization is less about giving up control and more about leveraging private capital and expertise for national development.

The Other Side: Privatization as a Confession of Inability

However, Pakistan’s record also offers abundant evidence that privatization often reflects government incapacity rather than strategic evolution.

Weak Governance and Transparency Deficits

A 2002 parliamentary inquiry revealed that nearly Rs 80 billion in privatization proceeds were untraceable, and that several sectors—oil, cement, sugar, and automobiles—had formed private cartels after privatization. Instead of creating competition, ownership simply shifted from public monopolies to private oligarchies.

The Privatisation Commission itself has been criticized for political interference, opaque valuation processes, and inconsistent policy direction. According to a 2025 SouthAsia report, “privatization in Pakistan remains hostage to politics rather than economics,” often stalled by judicial stays, vested interests, and bureaucratic inertia.

 Selling the Sick Without Reform

In many cases, loss-making SOEs are sold off without prior restructuring—effectively transferring the problem rather than solving it. The privatization of Pakistan Steel Mills (PSM) is instructive. Instead of revitalization, partial privatization failed to deliver promised governance reforms or debt retirement. Workers were retrenched, yet production never recovered. Such outcomes reinforce the perception that privatization serves as a shortcut to avoid administrative responsibility.

 Weak Regulation and Consumer Impact

Where the state retreats, regulation must step in—but in Pakistan, regulators often lack independence or enforcement capacity. The Competition Commission of Pakistan (CCP) struggles to curb collusion among powerful groups, while the SECP, FBR, and SBP face resource and credibility challenges.

The result is rising consumer vulnerability. Whether it’s electricity tariffs, banking charges, or telecom fees, privatized sectors frequently pass inefficiencies and profits onto consumers. In effect, citizens lose twice: as taxpayers funding bailouts, and as consumers facing higher prices.

Political Capture and Conflict of Interest

Privatization has at times blurred the line between policy and patronage. Political influence in appointments, insider bidding, and post-sale benefits for politically connected business groups have marred public trust. Rather than merit-based competition, privatization has too often rewarded proximity to power.

Structural ProblemPrivatization cannot be isolated from Pakistan’s broader governance deficits. Weak institutions—such as the SECP, SBP, and FBR—struggle with enforcement, coordination, and data integrity. Political instability disrupts continuity; every new government revises priorities, halting ongoing transactions.

Moreover, privatization has not always fostered market competition. Instead, it has contributed to the creation of cartels—in sugar, cement, and energy—where a handful of firms dictate prices. The oil cartel of 10 companies, sugar cartel of 24, and cement cartel of 10, identified in early inquiries, exemplify this paradox: private ownership without regulation simply replaced public inefficiency with private exploitation.

The consumer’s position has weakened further as regulatory grip loosened. State oversight diminished while political interference persisted. For ordinary citizens, privatization has often meant higher costs, declining service quality, and vanishing accountability.

A Global Comparison: When Governments Succeed

Interestingly, while Pakistan divests, several advanced economies are re-expanding public ownership. Countries such as Norway, Singapore, and China have strengthened state enterprises with corporate-style governance rather than privatization. Their models emphasize autonomy, merit-based management, and strict accountability—proving that state ownership need not mean inefficiency.

The lesson is clear: the problem lies not in ownership itself, but in governance. A well-governed public enterprise can outperform a poorly regulated private one. Conversely, a weak state cannot regulate even the best-intentioned privatization.

Conclusion: Between Retreat and Reform

In Pakistan’s case, privatization has been both a mirror and a mechanism—a mirror reflecting state weakness, and a mechanism attempting fiscal repair. It reveals a government that often struggles to manage what it owns, yet aspires to modernize through private partnership.

Where privatization has succeeded—telecoms, banking, and K-Electric—it has done so under clear regulation, investment incentives, and public accountability. Where it has failed—steel, airlines, utilities—it has been due to political interference, opacity, and lack of preparatory reform.

Thus, privatization in Pakistan is not inherently a declaration of failure; it becomes one only when mismanaged. The challenge is not whether to privatize, but how—with transparency, regulatory strength, and social safeguards.

If these elements remain absent, privatization will continue to symbolize retreat from responsibility. But if pursued with reformist discipline, it can evolve into a strategic adaptation—an honest recalibration of state and market roles in a country still searching for balance between growth and governance.