The International Monetary Fund (IMF) has set a significant condition to abolish the Pakistan Sovereign Wealth Fund (PSWF) as a crucial prerequisite for qualifying for a new bailout package. The main aim behind this demand is to ensure transparency and accountability in the financial affairs of the country’s seven profitable state-owned firms. The government’s transfer of ownership and assets of these highly profitable enterprises to the PSWF through an Act of Parliament has become a major point of contention in finalizing the staff-level agreement with the IMF, according to government sources.
The IMF has urged a commitment to abolish the Fund and has set a deadline of September 30th to repeal the Pakistan Sovereign Wealth Fund Act 2023, which governs the operations of the PSWF. Sources have revealed that despite seeking more time to provide a final response, it seems that the government may have no choice but to comply with the IMF’s demand to ensure transparency and accountability in the affairs of the seven companies.
The previous government had enacted the Pakistan Sovereign Wealth Fund Act to transfer the shares of seven profitable entities and then sell them overseas to raise money. According to the law, the assets and profits of the Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited, Mari Petroleum, National Bank of Pakistan, Pakistan Development Fund, Government Holdings (Private) Limited, and Neelum-Jhelum Hydropower Company will be shifted to the sovereign wealth fund.
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Despite the profitability of the companies, the IMF has expressed concerns that Pakistan lacks the capital to invest in the Fund and that the government would also lose control over its strategic assets. The IMF urged the government to strengthen its privatization law instead of selling these strategic assets in a non-transparent manner. Although existing privatisation mechanisms are considered cumbersome and ineffective by Pakistani authorities, the IMF has not accepted this position.
As a result, the finance ministry has been unable to finalize a deal with the IMF despite the heavy losses inflicted on the economy and the people through its 2024-25 budget. Finance Minister Muhammad Aurangzeb has not yet given a firm deadline to conclude the staff-level agreement.
Furthermore, the PSWF is exempted from three core laws, a key concern for the IMF, which sees no justification for keeping the seven companies outside the ambit of the SOE Act of 2023. Finance ministry officials believe that the government will still have some control over these companies through the boards even after selling stakes to Gulf nations, opposing the IMF’s demand.
The Abu Dhabi Investment Authority (ADIA) had provided technical assistance to Pakistan in drafting the PSWF law, with the federal government fully owning the fund and providing the initial capital through the transfer of shareholding of the SOEs. If the government transfers the profits and assets of these companies into the Fund, it will permanently lose a source of non-tax revenues. The UAE had previously shown interest in acquiring stakes in Pakistan’s oil and gas sector companies, indicating a possibility for divesting shares of these assets. The proceeds from the sale of these assets were planned to be used for Pakistan’s shares in joint ventures in agriculture, mining, and information technology sectors.
