Pakistan's State-Owned Enterprises Face Severe Financial Challenges

A recent report from the Central Monitoring Unit (CMU) of Pakistan's Ministry of Finance has highlighted a critical financial crisis within the country's State-Owned Enterprises (SOEs), particularly in the power sector. The report indicates that the power sector is burdened with liabilities amounting to Rs9.2 trillion, which is approximately half of Pakistan's annual budget. Despite receiving substantial capital injections of Rs800 billion, the sector continues to experience significant losses and negative equity, raising concerns about its viability as a going concern.

DawnExpress TribuneEvery 6th tax rupee in Pakistan consumed by ailing SOEs

The CMU's FY25 aggregate report reveals a troubling trend: aggregate profits from SOEs fell by 13% to Rs709.9 billion, while net adjusted losses surged from Rs30.6 billion in FY24 to Rs122.9 billion in FY25. The National Highway Authority (NHA) and the power sector were identified as the largest contributors to these losses, with the power sector alone reporting over Rs315 billion in losses. The report also noted that net cash returns from SOEs to the government plummeted by 91%, dropping to Rs40.7 billion, indicating a severe decline in fiscal efficiency.

Every 6th tax rupee in Pakistan consumed by ailing SOEs

The report criticizes the business plans submitted by power distribution companies (Discos) and generation companies (Gencos) for lacking analytical rigor. These plans often fail to include essential financial planning elements, such as capital prioritization and return on investment modeling. Instead, they adopt an activity-based approach—planning, spending, and hoping for positive outcomes—rather than a value-based strategy that emphasizes strategic allocation based on financial returns. This has resulted in capital being tied up in low-yield assets and a failure to address operational inefficiencies.

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Despite the government's ongoing financial support, which increased by 37% to Rs2.1 trillion in FY25, the returns on this investment have been minimal. For every Rs1 provided in fiscal support, the government received only one paisa in return. The report underscores the growing dependency of SOEs on government transfers, which exacerbates fiscal vulnerabilities and threatens Pakistan's financial stability and economic growth.

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The report also highlights significant governance deficits within SOEs, with 86% of these entities deemed critically non-compliant with the SOE Act 2023. Weak statutory compliance standards hinder timely performance analysis and fiscal-risk evaluation. The CMU has called for improvements in board composition, audit timeliness, and performance-linked accountability to enhance strategic discipline and value creation.

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As Pakistan's SOEs grapple with mounting debt and operational inefficiencies, the government faces increasing pressure to implement structural reforms. The upcoming transition to International Financial Reporting Standards (IFRS) by February 2026 poses additional challenges, as it may expose the true extent of financial losses and liabilities within these entities. The report serves as a stark reminder of the urgent need for comprehensive reforms to ensure the sustainability of Pakistan's SOEs and protect the country's fiscal health.

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