Pakistan's Public Sector Enterprises: Reform Challenges Amid Mounting Debt

Efforts to reform Pakistan's public sector enterprises (PSEs) face significant obstacles, despite loans from the Asian Development Bank. Debt has soared to PKR 1.7 trillion, and privatisation remains politically sensitive. Governance issues persist, hindering effective reform and compromising fiscal stability.

Efforts to reform Pakistan's public sector enterprises (PSEs) are encountering significant obstacles, as recent fiscal data and international funding initiatives reveal substantial challenges. Despite receiving considerable loans from the Asian Development Bank (ADB) aimed at supporting reforms, the cumulative debt of PSEs has escalated to PKR 1.7 trillion, with additional borrowing surpassing Rs 43 billion in the fiscal year 2024.

Economic agendas highlight the urgency of privatising PSEs to alleviate national budgetary strains. The privatization of PSEs is also a critical requirement for securing future loans from the International Monetary Fund (IMF). The 2024-25 budget allocation for PSEs saw a dramatic surge to PKR 1.267 trillion, primarily designated for subsidies and grants, representing a 104 percent increase from the previous year. Contrastingly, the State Bank of Pakistan's latest report indicates a notable reduction in PSE borrowing during FY23, opposed to an increase of PKR 43.5 billion borrowed in FY24, exacerbating the debt burden.

Despite significant funding from the ADB, which launched the USD 300 million Public Sector Enterprises Reform Programme (PSERP) in 2016 to improve corporate governance and operational efficiency, substantial reforms remain elusive. Former Finance Minister Ishaq Dar had committed to enhancing PSE performance in sectors like railways, Pakistan Steel, and Pakistan International Airlines (PIA). However, political sensitivities surrounding the privatisation of major PSEs, which are major employers in a job-scarce economy, have hindered key economic reforms.

ADB's continued support included another USD 300 million loan for the second sub-programme in 2017, aimed at sustaining initial reform efforts. Despite these measures, the transformation of loss-making entities like PIA and Pakistan Steel remains contentious, reflecting the difficulties of balancing economic imperatives with political realities.

Many PSEs still depend heavily on government subsidies and credit guarantees for operation, underscoring ongoing governance and accountability deficiencies. The ADB aims to enhance transparency, performance management, and revenue generation in PSEs, aligning their operations with commercial principles for better service delivery and financial sustainability. However, the failure to implement comprehensive reforms has sustained the financial issues of PSEs, threatening fiscal stability and broader economic development, according to Dawn.

(With inputs from agencies.)