Government Delays National Bank of Pakistan Privatisation Due to Legal Complications

Introduction

On Monday, the Pakistani government decided to defer the privatisation of the National Bank of Pakistan (NBP) due to legal hurdles, contradicting a prior commitment made to the International Monetary Fund (IMF). This decision highlights ongoing challenges in Pakistan’s efforts to reform state-owned enterprises (SOEs) and align with international agreements.

Legal and Policy Challenges

Last month, Pakistan assured the IMF that it would remove the special status of seven government-owned entities, including the NBP. This move was part of a broader strategy to privatize or reform these firms to improve governance and financial performance. However, on Monday, the government cited the NBP’s special status as a reason for its retention in the public sector. Finance Minister Senator Muhammad Aurangzeb chaired a meeting of the Cabinet Committee on State-Owned Enterprises (CCoSOEs), where the decision was made.

According to the Ministry of Finance, the Cabinet Committee decided that the NBP, being part of the Sovereign Welfare Fund, is exempt from the State-Owned Enterprises (SOE) Act 2003. This exemption means the NBP does not need to be categorized under the SOE Act. The committee also decided to keep the EXIM Bank in the public sector, declaring it an essential SOE.

Context of the SOE Reform

The Pakistan Sovereign Wealth Fund (PSWF) Act was enacted to facilitate the privatisation of several state-owned entities, including the NBP, by transferring their shares and eventually selling them overseas to raise funds. The PSWF Act provides that entities under its control are exempt from the SOE Act of 2023, which was designed to improve the governance and financial management of public-sector companies based on World Bank recommendations. However, the government has committed to amending the PSWF Act by December to remove the special status of these firms, bringing them under the SOE Act’s purview.

Privatisation and Reform Progress

Despite these commitments, the government’s privatisation agenda is facing delays. The Cabinet Committee on Privatisation (CCoP) recently deferred a decision on including 16 new government-owned enterprises in the active privatisation list, reinforcing its earlier decision to privatise 24 enterprises, many of which have been on the list for years.

The CCoSOEs also approved merging the National Security Printing Company (NSPC) with the Pakistan Security Printing Corporation (PSPC) to resolve operational issues. Additionally, it was decided that the Zarai Taraqiati Bank Limited (ZTBL) will proceed with privatisation, and the First Women Bank Limited and House Building Finance Company are in advanced stages of privatisation. The finance ministry is also working on liquidating the Industrial Development Bank Limited and winding up the SME Bank.

Conclusion

The decision to delay the NBP privatisation reflects the complexities and legal challenges involved in reforming Pakistan’s state-owned enterprises. While the government has made commitments to the IMF and outlined ambitious plans, the slow progress and legal obstacles highlight the difficulties in implementing these reforms. The effectiveness of Pakistan’s privatisation strategy will be crucial for improving the financial health of its public-sector enterprises and meeting international obligations.