Rightsizing the Federal Government The total cost imposed on the Federal Budget is large as shown in Table 11.4. Contingent liabilities were Rs 195 billion in 2012-13 which have increased by 55 percent by 2019-20. Grants, subsidies, and loans aggregated to Rs 147 billion and have mushroomed to Rs 225 billion in 2019-20. Overall, the cost imposed on the Federal Budget by SOEs was Rs 704 billion in 2019-20. An optimistic projection is that it will remain, more or less, at this level even after some retirement of circular debt. The net negative impact has increased from Rs 160 billion in 2017-18 to Rs 487 billion, a tripling of the level in two years. This is unprecedented. In 2019-20 the net burden of the SOE was equivalent to 1.2 percent of the GDP, and almost 14 percent of the budget deficit is attributable to the SOEs. 11.4. Implementing the Rightsizing There Is need for actions of a structural nature to both downsize the Federal Government and to reduce the burden imposed by the SOEs. Rationalization of Number of Divisions: Chapter 6 indicates that many Divisions can be merged. This will not only reduce costs but will also enable greater integration in the performance of functions. Privatization of SOEs: Chapter14 indicates the plans of the Government for privatization of 44 SOEs and liquidation of one SOE. However, the recommended privatization of DISCOs in power distribution is not justified as it will lead to the creation of many‘natural monopolies’, and inter-disco tariff differentials subsidy would need to continue from the Government. Management of Retained SOEs: Many of the large SOEs with big losses are proposed to be retained on the grounds that they are delivering core services or providing basic infrastructure. This includes the Railway, PIA, National High Authority, Pakistan Post Office and 37 other smaller entities. There is need to prepare Results-Based plans for improvement in the operations of these entities. This will involve partial retrenchment of surplus staff, reconstitution of the Board of Directors, changes in senior management, appropriate and feasible changes in pricing policies, critical new investment for reducing costs, etc. These plans should be made public by the relevant Divisions. Reduction in circular Debt: The circular debt of the power sector has risen exponentially. It now stands at Rs 2.8 trillion and is rising annually by almost Rs 500 billion. The focus must be on reducing the increase in circular debt by cutting down losses, renegotiating with IPPs 119