Islamabad – Pakistan’s State-Owned Enterprises (SOEs) are placing a significant strain on the national economy, absorbing approximately Rs2.1 trillion in tax revenue during fiscal year 2025. A recently released report from the Ministry of Finance’s Central Monitoring Unit (CMU) paints a concerning picture of widespread financial mismanagement and unsustainable debt within these entities, particularly in the power sector. The findings, required under the International Monetary Fund (IMF) program, raise serious questions about the long-term viability of these crucial economic players.
The report highlights a deepening crisis in the power sector, burdened by liabilities totaling Rs9.2 trillion – equivalent to half of Pakistan’s annual budget. Despite receiving a substantial capital injection of around Rs800 billion during FY25, the sector continues to hemorrhage funds and accumulate losses. This financial drain is compounded by a lack of effective planning and a reliance on short-term fixes rather than sustainable solutions, according to the CMU’s assessment. The National Highway Authority (NHA) was identified as the second largest contributor to financial losses.
SOE Performance: A Declining Trend
aggregate profits across all SOEs decreased by 13% in FY25, falling from Rs820.7 billion in FY24 to Rs709.9 billion. This decline is largely attributed to reduced contributions from profit-making entities in the oil sector, influenced by falling international oil prices. Even as cumulative losses saw a slight improvement, decreasing by 2% to Rs833 billion, the net result was a total adjusted loss of Rs122.9 billion for FY25, a significant increase from the Rs30.6 billion loss recorded in the previous fiscal year. The NHA recorded the highest losses at Rs295 billion, followed by the power sector with over Rs315 billion in losses.
Fiscal support to SOEs increased by 37% to Rs2.079 trillion in FY25, compared to Rs1.513 trillion the previous year. This increase was driven by equity injections totaling Rs729 billion, largely due to a one-time circular debt payment. Government loans to SOEs also rose by 34%, reaching Rs354.1 billion, demonstrating the government’s continued commitment to providing financial support. However, grants and subsidies saw a decrease, falling by 27% to Rs269.2 billion and 7% to Rs726.3 billion respectively, potentially reflecting shifting government priorities or improved efficiencies in certain areas.
Power Sector Planning: Lacking Financial Rigor
The CMU report is particularly critical of the business plans submitted by power sector distribution companies (Discos). These plans are described as “descriptive rather than analytical,” often listing intended activities – such as improving recoveries or reducing losses – without adequately modeling the financial impact of these interventions. “The absence of clear financial causality undermines the credibility and effectiveness of these plans,” the report stated. This lack of rigorous financial planning extends to generation companies (Gencos), which tend to focus on preserving existing capacity rather than optimizing their asset portfolios.
The report also points to a “sunk cost fallacy” within Gencos, where prior investments are used to justify continued capital expenditure, even when more cost-effective alternatives, such as decommissioning, might be available. Without proper rationalization modeling, capital continues to be misallocated, the CMU observed. Discos’ plans frequently omit essential financial planning elements, including capital prioritization, sequencing investments for loss reduction, and modeling returns on investment. Key indicators like the Debt Service Coverage Ratio (DSCR), Weighted Average Cost of Capital (WACC), and leverage are often overlooked.
Unfunded Liabilities and Sovereign Guarantees
Beyond the immediate financial losses, Pakistan’s SOEs are grappling with substantial unfunded liabilities. The report notes over Rs2 trillion in unfunded liabilities across all federal SOEs, including more than Rs1.5 trillion in unfunded pension liabilities within the power sector alone. This represents in addition to approximately Rs1.9 trillion in circular debt. Sovereign guarantees have also increased markedly, rising by 52% from Rs1.412 trillion in FY24 to Rs2.164 trillion in FY25, largely due to accounting for self-liquidating guarantees on stock. This shift indicates a growing trend of sovereign-intermediate financing, where the federal government assumes the credit risk while SOEs act as borrowers.
Total SOE debt rose by 4% to Rs9.571 trillion, while total liabilities decreased slightly by 3% to Rs31.742 trillion. During FY25, approximately 16% of the federal government’s total tax revenue of Rs12.97 trillion – roughly Rs2.1 trillion – was channeled back to SOEs through subsidies, equity injections, grants, and loans. This means that for every Rs6 collected in taxes, Re1 is absorbed by SOEs.
The CMU recommends strengthening board composition, improving audit timeliness, enhancing disclosure quality, and implementing performance-linked accountability measures to foster greater strategic discipline and sustainable value creation within SOEs.
As Pakistan navigates ongoing economic challenges, addressing the financial vulnerabilities of its SOEs will be critical. The government’s ability to implement meaningful reforms and attract private investment will be key to reducing the burden on taxpayers and ensuring the long-term stability of the energy sector and the broader economy. The next steps will likely involve further scrutiny of SOE performance and a renewed push for structural reforms, as mandated by the IMF.
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