Government Initiative

*Govt to establish 1st corporate restructuring company

Prime Minister Imran Khan has taken one more step towards economic development as the federal government decided to establish Pakistan’s first corporate restructuring company. Sources also mentioned that the upcoming entity, Pakistan Corporate Restructuring Company Limited (PCRCL), will be organized with the assistance of 10 domestic banks with an initial paid-up capital of Rs 500 million. The company aims to create employment opportunities through the revival of distressed entities in Pakistan. It is also said that the initiative taken under the Corporate Restructuring Companies act will raise the economic growth rate after the establishment of PCRCL. The new entity will ‘acquire, manage, restructure, resolve Non-Performing Assets (NPAs) of Financial Institutions and reorganize and revive the commercially and financially distressed companies’, sources recorded. It further said that the domestic banks include Habib Bank Limited, National Bank of Pakistan, United Bank Limited, MCB Bank Limited, Allied Bank Limited, Meezan Bank Limited, Bank Al-Falah limited, Bank Al-Habib Limited, Habib Metropolitan Bank Limited and Faysal Bank Limited. Moreover, the attempts the State Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan (SECP) were appreciated through the federal authorities in facilitating the investor banks in processing of request for incorporating and licensing of PCRCL. Despite a number of initiatives, the overall confidence among businesses and consumers remained weak, pointed out SBP in its latest report, as they struggled to preserve their purchasing powers and dealt with operational constraints stemming from the adjustment process.

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For businesses, perceptions about the present economic situations remained below the threshold level (index value below 50, which represents prevalence of more negative views than positive views), said the central bank. The cautious behavior, coupled with tapering demand and the compression of unregistered businesses – which dominate the network of dealership and wholesale infrastructure of registered firms – reinforced the economic slowdown, stated SBP. PCRCL is being considered as a vibrant economic agent to revitalise the sustainable distressed entities and rehabilitation of sick industrial units. It is noteworthy to mention here that SECP had notified the enactment of Corporate Restructuring Companies Rules 2019 in November previous year which paves way for the institutional arrangements and legal actions by the federal government under the Corporate Restructuring Companies Act 2016 for the revival of financial distressed companies.

The Economic Survey of Pakistan recorded that the growth momentum of the Pakistani economy, at 5.5 percent in FY2018 (with an average growth rate of 4.7 percent for period FY 2014-2018), became unsustainable because of rising macroeconomic imbalances i.e. high and increasing fiscal and current account deficits. The twin deficits always persisted in the Pakistani economy, however, in FY2018 trade deficit was historically high both in monetary value ($ 32 billion) and as a percent of GDP (10.1 percent), while the fiscal deficit stood 6.5 percent of GDP. The contained inflation and maintained exchange rate accelerated the growth in domestic demand. High consumption expenditure and government spending in turn led to massive surge in imports. Some of required adjustments on fiscal accounts and exchange rate were delayed in FY2018 being an election year, that resulted in depletion of foreign reserves and increase in monetary borrowing.

To achieve the economic targets, business-friendly policies should be ensured for the industry to grow and attain the increased targets on a yearly basis.