Pakistan Sovereign Wealth Fund: To Bolster Economic Stability and Growth

 

(Maria Mansab)

In a significant move towards sustainable economic development, Pakistan has approved the bill to establish the Pakistan Sovereign Wealth Fund (PSWF), a strategic initiative designed to consolidate the government’s diverse investments into a single entity. Approved last year, the PSWF aims to align Pakistan’s financial management with stringent international standards and attract substantial foreign investment.

The PSWF’s primary mission is to evaluate and manage the Pakistani government’s scattered investments, which include shares in state-owned enterprises (SOEs). By streamlining these assets, the fund aims to enhance fiscal efficiency and stimulate economic growth. The fund encompasses several profitable SOEs, such as Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited (PPL), the National Bank of Pakistan (NBP), Pakistan Development Fund, Government Holdings Private Limited, Mari Petroleum Company Limited, and Neelum Jhelum Hydro Power Company Limited.

According to the World Economic Forum, sovereign wealth funds have significantly increased in standing. Currently, there are 73 such funds globally, managing assets totaling $11.3 trillion. This represents a tenfold increase over the past decade. These funds are crucial for developing critical industries and infrastructure, and for advancing sustainable development goals like renewable energy.  

The first case study of a sovereign wealth fund is Egypt. Egypt set up its fund in 2018 and has raised about $5 billion by selling shares in various companies between March 2022 and July 2023. As of June 2024, Egypt plans to sell shares in 35 more state-owned companies to strategic investors. Additionally, the Sovereign Fund of Egypt bought a 25% stake in the Arab Investment Bank. According to the SWF Institute, this fund ranks 47th globally and 12th in the Arab world.

The second case study is Indonesia’s sovereign wealth fund, launched in 2021. It aims to attract $200 billion in investments by 2024, focusing on infrastructure and green energy projects. This year, the fund plans to invest up to $1 billion, prioritizing green energy. Indonesia hopes to become a hub for energy transition, using its vast nickel reserves to support this effort.

Following these examples, Pakistan’s PSWF is designed to attract foreign investments and foster public-private partnerships, essential for funding infrastructure projects and enhancing economic stability. Recently, Pakistan invited foreign investors to participate in its $8 billion fund, with countries like the UAE already committing $1 billion.

The PSWF represents a strategic effort to improve financial stability. According to Prime Plus a Pakistani-based think tank April 2024 report, the government provided Rs 1.93 trillion in support to SOEs during FY2019-22. Sectors like electricity and infrastructure incurred substantial losses, with the electrical sector losing Rs 321 billion and the infrastructure, transport, and communication sectors losing Rs 295 billion. Major loss-makers included NHA, Pakistan Railways, PIA, and electricity sector DISCOs.

The Finance Ministry’s report “State-Owned Enterprises Triage: Reforms & Way Forward” states that state-owned enterprises (SOEs) are responsible for about 90% of the total losses annually. Privatizing entities like Pakistan International Airlines (PIA) and outsourcing airport operations are part of broader reforms to alleviate these burdens.

The World Bank and the International Monetary Fund (IMF) have emphasized the need for these reforms, advocating for the privatization of state-owned assets to reduce Pakistan’s fiscal burden and attract foreign investment.

The report by the World Bank, “Pakistan Development Update: Fiscal Impact of Federal State-Owned Enterprises,” to safeguard assets and stakeholders’ interests, the government must establish robust governance arrangements for the SWF. The government should contemplate adhering to the performance and reporting standards of the International Forum of Sovereign Wealth Funds (IFSWF) by becoming a member.

The Inter-Governmental Commercial Transactions Act, 2022 is consistent with the goals of Pakistan’s Sovereign Wealth Fund (PSWF) by establishing a legal framework for the attraction of foreign investments, the cultivation of international alliances, and the improvement of economic stability. It facilitates the privatization and outsourcing of state-owned enterprises and secures funding for large-scale infrastructure projects by guaranteeing transparent and efficient transactions, robust governance, and accountability, thereby supporting PSWF’s initiatives.

The objective of the Inter-Governmental Commercial Transactions Act, 2022, is to establish a structured framework for inter-governmental agreements that will facilitate and promote economic and commercial relations between Pakistan and foreign states.

Additionally, the Reko Diq project, which is anticipated to commence production in 2028 with a $10 billion investment, is anticipated to produce an annual yield of approximately 200,000 tonnes of copper and 250,000 ounces of gold. Pakistan possesses a wealth of natural resources that can significantly contribute to its economic stability. The Saindak project, managed by a Chinese company, is currently yielding 150,000 tonnes of copper, 2.8 tonnes of silver, and 1.5 tonnes of gold annually. This contributes to the country’s mineral wealth alongside the vast coal deposits in Thar, which are estimated to be around 175.5 billion tonnes. Furthermore, regions like Swat and Hunza are rich in precious gemstones, notably emeralds and rubies, respectively. Currently, Pakistan’s gold reserves are valued at approximately $3.82 billion. Remarkably, Pakistan ranks seventh globally in copper reserves, estimated to be around 6.72 billion tons making it a significant player in this industry’s evolution. Integrating these substantial mineral resources into Pakistan’s sovereign wealth fund along with SOEs could bolster economic stability and provide a robust buffer against economic fluctuations.

The Special Investment Facilitation Council (SIFC) can establish copper as a valuable asset within the Pakistan Sovereign Wealth Fund (PSWF) by leveraging this substantial reserve. This strategic investment will considerably contribute to Pakistan’s economic stability and enhance PSWF’s asset portfolio by utilizing the country’s abundant mineral resources to foster sustained economic growth. The PSWF can guarantee that the benefits of this initiative are optimized, thereby fostering long-term economic development and stability, through the SIFC’s facilitation. 

SIFC is widely recognized as the optimal framework for the implementation of the PSWF. The PSWF can improve its governance, operational efficiency, and risk management by utilizing the SIFC’s supervision and management capabilities, thereby guaranteeing that these SOEs make a positive contribution to Pakistan’s economic stability and growth. The Pakistan Sovereign Wealth Fund’s establishment is a substantial stride toward contributing to the country’s economic development and stability. The fund’s objective is to establish a sustainable and prosperous economic future for Pakistan by adhering to global best practices and prudent financial management. 

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