Utility stores closure, but at what social cost?

Adding 15,000 job seekers to an already strained job market, while dismantling an entity that protected poor from market manipulations by wholesalers and retailers, risks deepening social tensions. It could further erode public trust in the democratic system’s ability to meet people’s needs and shield them from exploitation.

Last week, the federal cabinet unanimously endorsed Prime Minister Shehbaz Sharif’s earlier decision to dissolve the Utility Stores Corporation (USC). The meeting was informed that USC officially ceased operations on July 31. Established in 1971, USC was Pakistan’s largest departmental store network, providing subsidised food and essential items to low-income households, while also serving as a benchmark for market prices. At its peak, it operated around 6,000 outlets nationwide, staffed by approximately 15,000 regular and contractual employees. 

According to media reports citing a USC notification, the decision to dissolve the corporation followed directives issued by Prime Minister Shehbaz Sharif in June and a subsequent meeting of its board of directors. It was presented as a part of the government’s broader strategy to exit commercial ventures, privatise underperforming state-owned enterprises, ease the fiscal burden, and create greater space for private sector participation. 

In the cabinet meeting, PM Sharif directed the relevant ministries and departments to ensure the protection of USC employees during the dissolution process through Voluntary Separation Scheme (VSS), along with reskilling and appropriate placement of those transferred to civil service surplus pool. He emphasised that the entire process must be transparent and fully compliant with all legal and regulatory frameworks related to employee welfare.

ECC approves Rs30.2b grant for closure of USC stores

“The decision to dismantle a unique entity with the stroke of a pen appears aimed at easing IMF pressure to restructure and privatise state-owned enterprises, viewed by donors as distortions to market dynamics and a fiscal drain due to chronic underperformance. While this diagnosis and the remedy may be debated, even if one accepts them, why begin the reform drive by targeting an entity that directly served the poor?” remarked an expert commenting on the development.

“It is because, unlike SOEs in logistics, finance, or the fuel sector, dissolving this entity doesn’t upset elite interest. That makes the move not just unfair, but downright cruel. As for safeguarding the rights of displaced employees, frankly, I have little hope. I’d be pleasantly surprised if the government actually follows through on its promises”, commented an independent economist, speaking anonymously. 

Defending the government decision, a member of the government team argued that it is a step in the right direction. “Over the years, USC, like many other commercial public entities had become a self-serving cess pool of corruption, public sector inefficiency and mismanagement, depriving the public exchequer of precious resources to remain functional, failing to deliver on its mandate. It reported severe losses, posting a Rs4.1 billion deficit in the first half of FY25, with cumulative losses reaching Rs15.5 billion.

“This decision aligns with ongoing government efforts to foster an investor-friendly environment and spur industrial and agricultural growth via reforms and private-sector-led mechanisms”, he added.

According to World Bank’s April 2024 report titled ‘Pakistan Development Update: Fiscal Impact of Federal State-owned Enterprises’ there are approximately 206 to 212 public entities, including their commercial, non-commercial, and subsidiary bodies. However, a core group of 88 commercial SOEs accounts for the majority of the sector’s assets and revenues. Based on data from the first half of the fiscal year 2024, the ministry of finance’s Central Monitoring Unit reported over 15 SOEs collectively incurred losses of Rs5.89 trillion, largely due to persistent governance failures and stalled reforms. The National Highway Authority (NHA) was identified as the largest loss-maker, with a cumulative deficit of Rs19.53 trillion. Alarmingly within just six months, the NHA added Rs153.27 billion in fresh losses.

Power distribution companies have continued to post significant losses. The Quetta Electric Supply Company (QESCO), Sukkur-based SEPCO, Peshawar Electric Supply Company (PESCO), each recorded multi-billion-rupee deficits, reinforcing the power sector’s role as a key driver of Pakistan’s mounting circular debt. Overall liabilities in this sector have now reached Rs4.9 trillion, with the electricity segment alone accounting for Rs2.4 trillion of that total.

A former Sindh secretary voiced strong reservations about the government’s decision, questioning the economic rationale behind it. “I am not sure if our policymakers have ever studied economic theory or understand Keynes, who advocated job creation and increased consumption to lift economies out of slumps. Instead, our planners seem to follow IMF’s suggestions blindly. Utility stores could have been reformed to improve efficiency, stabilize prices, and curb inflation, while also preserving jobs as a bonus”, he remarked.

Qurban Ali Zardari, head of occupational health, safety and environment at a private company and an affiliate of the Employer’s Federation, attributed USC’s failure to mismanagement and the withdrawal of subsidies.