Public sector efficiency: A billion-dollar challenge.

ISLAMABAD -- It is quite topical nowadays that most public sector institutions are operating in the red with piles of debt and plenty of inefficiencies in their operating models. This is just one part of the story.

The real point to ponder is not the financial aspect but the efficiency loss and resulting opportunity cost. The efficiency loss of public sector enterprises in Pakistan is a serious issue that affects the country's economy and fiscal stability. According to some estimates, only eight public-sector enterprises lose an estimated Rs250 billion annually. The number may go up to Rs1000 billion per year if all state-owned enterprises (SOEs) are taken into account. These enterprises include power companies, railways, airlines, steel mills, and others that provide essential public goods and services. It is well documented that the financial performance of such SOEs has remained unsatisfactory due to various factors such as mismanagement, corruption, political interference, overstaffing, and lack of competition. However, the efficiency losses have not been estimated at all.

The government of Pakistan has initiated various reforms to improve the efficiency and profitability of these enterprises, such as privatisation, governance reforms, restructuring, and performance-based contracts. However, these reforms face many challenges and resistance from different stakeholders, such as employees, unions, political parties, and civil society groups. Therefore, the government needs to adopt a comprehensive and coherent strategy to address the root causes of inefficiency and loss in the public sector enterprises. Some possible measures include:

- Developing a clear ownership rationale for each enterprise based on its strategic importance, market failure, social welfare, and fiscal risk.

- Establishing an independent and professional board of directors for each enterprise that can oversee its management and operations without political interference.

- Implementing a transparent and merit-based recruitment and promotion system for the employees of the enterprises that can ensure accountability and performance.

- Introducing a competitive and market-based pricing mechanism for the goods and services provided by the enterprises that can reflect their true costs and benefits.

- Enhancing the regulatory and oversight role of the relevant ministries and agencies that can monitor the performance and compliance of the enterprises with applicable laws and...

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