ISLAMABAD: The World Bank emphasizes the urgent need for Pakistan to fully implement the State-Owned Enterprises (Governance and Operations) Act 2023 and the SOE Ownership and Management Policy 2023, while expediting privatizations and executing the SOE Triage exercise.
Pakistan’s economic landscape is heavily populated with state-owned enterprises (SOEs) operating across diverse sectors. However, these SOEs have been consistently running at losses since 2016, requiring substantial financial support from the government in the form of subsidies, grants, loans, and guarantees, resulting in significant fiscal strain. The World Bank has mentioned this in its report, “Pakistan Development Update: Fiscal Impact of Federal State-Owned Enterprises” April 2024, released on Tuesday.
A dedicated section of this Development Update highlights the fiscal drain and associated risks posed by federal SOEs, underscoring the necessity for critical reforms to enhance their performance, efficiency, and governance.
It is imperative for the government to discontinue the practice of covering SOE losses through transfers from the federal budget. Measures should be implemented to manage fiscal risks stemming from explicit and implicit obligations, holding SOEs accountable for performance and liable for fiscal risks arising from their activities.
The Ministry of Finance conducted a triage exercise in 2020–21 to evaluate the functions and financial performance of individual SOEs.
As a result, 14 top loss-making federal commercial SOEs, including the ten electricity DISCOs, PIACL, Pakistan Steel Mills (PSM), and Pakistan Railways, were recommended for privatization, restructuring, or retention by the Federal Government.
To mitigate fiscal costs associated with federal commercial SOE losses, the prompt implementation of the SOE Triage 2021 is crucial, alongside privatization efforts. Key steps include budgeting for restructuring and transaction advisory costs, devising performance improvement roadmaps for retained SOEs, resizing the SOE portfolio, and exploring divestment opportunities.
For SOEs slated for privatization, such as PIACL and PSM, enhancing financial viability through debt-to-equity swaps and revaluation of assets is recommended. Full implementation of the SOE Act and Policy, facilitating private sector participation, is imperative for reforming the SOE sector.
Sector ministries should develop transformation plans for non-strategic and non-essential SOEs, exploring options like corporate restructuring and public–private partnerships. For essential SOEs like DISCOs, outsourcing and concession models should be considered.
These measures aim to alleviate the fiscal burden on the public exchequer. Additionally, SOEs under SWF should adhere to the SOE Act to enhance financial transparency and corporate governance.
While the National Highway Authority (NHA) was excluded from the triage exercise due to its unique financing model, it requires substantial financial restructuring. Upon corporatization, the NHA can access diverse funding sources, reducing reliance on government loans or guarantees and fostering self-sustainability. Until then, funding through PSDP grants for socioeconomic projects is recommended.
