Pakistan has assured the IMF it will amend the sovereign wealth fund law to remove powers to sell SOE assets, retain revenues and borrow. The fund will remain non-operational until parliament passes the changes.
ISLAMABAD: Pakistan has assured the International Monetary Fund (IMF) that it will amend the law governing the Pakistan Sovereign Wealth Fund (SWF) to remove its authority to directly sell assets of state-owned enterprises to foreign governments, retain revenues, or raise debt.
Under the commitments shared with the IMF, the government will not make the fund operational until parliament passes amendments that strip these powers and reduce the SWF’s role to that of a holding company. The finance ministry, however, missed the extended deadline of end-March for placing the amendments before parliament.
The IMF has made the revision of the law a condition to prevent any reversal by the government, and the fund cannot be activated until the lender is satisfied with the legal changes. The understanding was reached as part of the third programme review, under which Finance Minister Muhammad Aurangzeb assured the IMF that the agreed amendments would be carried out.
The IMF is scheduled to approve two loan tranches worth $1.2 billion on Friday.
Changes sought in the SWF law
The Pakistan Democratic Movement government enacted the Pakistan Sovereign Wealth Fund Act in 2023 with the aim of transferring shares of seven profitable entities in the first phase and later selling them abroad to generate funds. The fund has remained non-operational because of the IMF’s objections.
The seven entities are Oil and Gas Development Company, Pakistan Petroleum Limited, Mari Petroleum, National Bank of Pakistan, Pakistan Development Fund, Government Holdings (Private) Limited, and Neelum-Jhelum Hydropower Company.
The IMF had objected to both the governance structure and the legal mandate that allowed the fund to directly dispose of state assets to foreign countries without a competitive process.
According to the agreed framework, the SWF’s role will be limited to holding and managing state-owned enterprises on behalf of the state and creating value through operational and financial improvements. It would also seek to attract foreign direct investment by facilitating and mobilising co-investment in strategic commercial ventures that generate returns in line with its investment mandate.
A key change is that the fund will no longer be allowed to directly sell assets to domestic or foreign buyers. Any privatisation or sale of assets of the seven SOEs currently under the fund must instead follow international standards and best practices through open, competitive, transparent and non-discriminatory procedures, with minimum disclosure requirements at every stage, including beneficial ownership.
The finance ministry has also committed to ensuring fiscal safeguards, including a requirement that all revenues from the wealth fund and its sub-funds go directly to the government. Unlike the original law, the fund will not be allowed to keep money for investment purposes; any such financing would have to be provided through budget allocations under the Public Financial Management Act.
The revised framework would also bar the fund from borrowing or taking on debt in any form. It would not be permitted to issue guarantees or provide collateral, including against the shares or assets of SOEs under its control. It would also be prohibited from lending to public or private entities or to any domestic or foreign person.
In addition, the fund would not be allowed to participate in public-private partnerships, acquire financial assets or instruments of any kind, or receive contributions from the State Bank of Pakistan, state-owned enterprises, or any other public body.
Governance and privatisation commitments
The government has further committed that appointments to the SWF board and advisory committee will be made through transparent, merit-based and participatory processes aimed at protecting professionalism and independence from undue public or private influence. The commitments also include effective cooling-off periods to strengthen independence.
The accountability mechanism under the SOEs Act will also apply to the wealth fund and the companies it manages, while exemptions currently available under Section 50 of the SWF Act will be withdrawn.
Separately, the government has given the IMF fresh assurances on privatisation, an area in which it has fallen behind on its commitments. According to the report, the only privatisation completed so far is that of Pakistan International Airlines.
The government also informed the IMF that private sector participation in some power distribution companies had been delayed while further steps were being taken to address market concerns.
