State-owned enterprises (SOEs) in Pakistan are in a state of crisis, grappling with persistent inefficiencies that have led to staggering losses over the years. These ongoing issues have not only strained public finances but also severely limited the government’s fiscal maneuverability. Urgent reform is the need of the hour.
The recently published annual report from the State Bank of Pakistan (SBP) underscores the slow pace of reforms in the SOE sector, noting that many of these enterprises have recorded net losses for the past eight years. In that time, the government’s financial assistance to these SOEs—through subsidies, grants, loans, and equity investments—has soared to Rs5.7 trillion, representing about 1.4% of the GDP from FY16 to FY23.
To ensure Pakistan’s fiscal health, it’s crucial to significantly change the current approach to supporting and bailing out these enterprises. The SBP report indicates that most of the losses stem from two main sectors: power, and infrastructure, transport, and IT and communications (ITC). The power sector alone faced combined losses of Rs208 billion in FY23, accounting for 29% of total SOE losses, while the infrastructure and transport sectors inflicted 69% of overall losses, with the National Highway Authority and PIA being major contributors.
It’s important to note that even profitable SOEs, which often rely heavily on government contracts, can thrive in a competitive market with the right reforms. Global success stories in SOE reforms demonstrate that significant change is possible through sector reorganization, deregulation, and the promotion of competition.
Creating strong corporate governance frameworks to tackle management inefficiencies—while fostering transparency and accountability—is essential for effective reform. It’s also worth noting that lengthy privatization processes aren’t always the solution to SOE inefficiencies.
In Pakistan, entrenched resistance to meaningful reform, often stemming from vested interests and fear of job losses, has led to fragmented efforts that often lack direction, influenced more by external pressures from international lenders than by a genuine desire for substantial change.
There is also a lack of political consensus on how to reorganize SOEs effectively, with different parties and stakeholders having divergent views on the best approach. This, coupled with bureaucratic resistance, labor management issues, and a general neglect of global best practices, has made it challenging to implement effective reforms. As highlighted in the SBP report, privatization efforts have often taken far too long—ranging from six to 16 years—making it challenging to address the significant losses facing enterprises like PIA.
Despite recent signs of a stronger government commitment, such as important legislative measures last year and the formation of a permanent cabinet committee focused on improving corporate governance and sector competition, the true impact of these efforts hinges on genuine political will and the public’s unwavering support for a comprehensive reform strategy.
In addition, it’s crucial to set clear objectives and performance benchmarks for SOEs to enhance corporate governance, ensuring accountability, transparency, and effective management. This structured approach is vital for aligning SOEs with Pakistan’s broader economic goals, ultimately optimizing resources, boosting revenues, and easing the government’s financial burdens.
