Pakistan’s public sector enterprises are suffocating under a mounting debt of PKR 1.7 trillion

The Pakistan government’s efforts to reform public sector enterprises (PSEs) have faced persistent setbacks, Dawn reports, as evidenced by recent fiscal data and international financial initiatives.

Despite a significant loan from the Asian Development Bank (ADB) to support reforms, the accumulated debt of public sector enterprises (PSEs) has risen to Rp 1.7 trillion pesos, with additional borrowing in fiscal 2024 expected to exceed Rp 43 billion.

Economic priorities underscore the urgent need to privatize PSEs to ease the burden on the state budget, a key step also mandated to secure future loans from the International Monetary Fund (IMF). The allocation for PSEs in the 2024-25 budget has increased sharply to PKR 1.267 trillion, largely earmarked for grants and subsidies, up 104 percent from the previous fiscal year.

The latest report by State Bank of Pakistan reveals a noticeable decline in PSE borrowings in FY23, which is in sharp contrast to the PKR 43.5 billion borrowing in FY24 alone, adding to the existing debt burden. Despite receiving significant funding from ADB, which initiated a USD 300 million Public Sector Enterprises Reform Programme (PSERP) in 2016, aimed at improving corporate governance and operational efficiency, meaningful reforms have been elusive.

Former finance minister Ishaq Dar, during his tenure, pledged to improve the performance of PSEs, particularly in sectors such as railways, Pakistan Steel and Pakistan International Airlines (PIA). However, political sensitivities surrounding the privatization of major PSEs, significant employers in a job-starved economy, have hampered progress on key economic reforms.

“ADB support began with a $300 million loan for sub-programme one in June 2016, followed by an additional $300 million for sub-programme two in 2017, aimed at sustaining and expanding initial reform efforts,” the ADB report noted. Despite these efforts, the transformation of underperforming entities such as PIA and Pakistan Steel remains a contentious issue, underscoring the challenges of balancing economic imperatives with political realities, according to Dawn. Many public sector enterprises continue to rely heavily on government subsidies and loan guarantees to sustain operations, underscoring persistent governance and accountability shortcomings. ADB’s goals included increasing transparency, performance management and revenue generation in public sector enterprises, aligning their operations with commercial principles to improve service delivery and financial stability. Failure to implement comprehensive reforms has perpetuated the financial problems of public sector enterprises, threatening fiscal stability and hampering broader economic development, Dawn reported.