Need for provincial asset management companies

During the budget season, there is immense activity in the federal and provincial financial circles attempting to reflect higher revenues and justifying expenditures. Political and sectoral lobbying is at its peak and limited funds have to be spread over several extremely important areas. By the time, the budget is debated and finally approved by the respective provincial assembly, some of the vital infrastructure sectors get limited funds or are ignored altogether. Almost always the budgets are deficit budgets. Furthermore, the budgeted revenues fall short of expectations and the federal and provincial governments end up borrowing from banks.

Punjab is expected to borrow Rs 25 billion in 2017-2018. Sindh has a deficit budget of Rs 14 billion. Khyber Pakhtunkhwa has an uncertain revenue budget and is fortunate to receive substantial funds from donors. Usually it is possible to restructure budgets and make logical revisions to allocations in most sectors, such as education, salaries, health, buildings, etc. Some expenditure can be deferred. But there are certain infrastructure activities that cannot and should not be delayed. These include roads and highways, water supply and management, hydropower, oil & gas and power distribution. These projects have relatively longer gestation periods and involve huge outlays, but the resulting benefits to the Province and the Nation are enormous and long term.Apart from benefits, these are revenue-generating projects, particularly the energy projects.

In order to provide for such vitally important projects, the provincial governments need to have a clean supply of funds that are not subject to social and political pressures and are reserved exclusively for the purpose of infrastructure development. Such funds can be raised from the general public. People want their funds to be secure and the Government is in a position to provide such security.

It would make sense for each Province to have its own one Asset Management Company. There can be more than one Company for different kinds of infrastructure projects depending on theirgestation periods, revenue projections and potential return to the investors. The importance of Asset Management Companies in Pakistan can be seen from their success in the eight years, 2001-2008, when the investment in such Companies grew from below Rs 25 billion to well over Rs 300 billion.

Today most of the funds invested in mutual funds come from Karachi, Lahore and urban cities of Punjab. The potential to raise these funds is enormous, not only from within Pakistan but from the extensive diaspora in the UAE, Saudi Arabia and the US. Yet Pakistan stands nowhere when compared with other countries. In Pakistan, the total mutual funds are less than 10% of the bank deposits whereas in India it is over 30%. Fortunately, Asset Management Companies are strictly regulated by SECP. When a Provincial Government sets up an Asset Management Company, the funds will be used properly for defined infrastructure projects and the investors can expect returns over a much longer term.