Pakistan's public sector enterprises suffocate under mounting PKR 1.7 trillion debt

The Pakistan government's efforts to reform its public sector enterprises (PSEs) have been marred by persistent challenges, as highlighted by recent fiscal data and international funding initiatives, Dawn reported.

Despite a substantial loan from the Asian Development Bank (ADB) aimed at bolstering reforms, the cumulative debt of PSEs has soared to PKR 1.7 trillion, with an additional borrowing exceeding Rs 43 billion in the fiscal year 2024.

Economic priorities underscore the urgency of privatising PSEs to alleviate the strain on the national budget, a crucial step also mandated for securing future loans from the International Monetary Fund (IMF). The allocation for PSEs in the 2024-25 budget saw a dramatic increase, reaching PKR 1.267 trillion, largely earmarked for subsidies and grants, marking a 104 per cent surge from the previous fiscal year.

The State Bank of Pakistan's latest report reveals a notable decrease in PSE borrowing during FY23, contrasting sharply with the PKR 43.5 billion borrowed in FY24 alone, adding to the existing debt burden. Despite receiving substantial funding from the ADB, which initiated the USD 300 million Public Sector Enterprises Reform Programme (PSERP) in 2016, aimed at enhancing corporate governance and operational efficiency, meaningful reforms have been elusive.

Former Finance Minister Ishaq Dar, during his tenure, committed to improving PSE performance, particularly in sectors like railways, Pakistan Steel, and Pakistan International Airlines (PIA). However, the political sensitivity surrounding the privatisation of major PSEs, significant employers in a job-scarce economy, has hindered progress on critical economic reforms.

"The ADB's support began with a USD 300 million loan for sub-programme one in June 2016, followed by an additional USD 300 million for sub-programme two in 2017, aimed at sustaining and expanding initial reform efforts," noted an ADB report. Despite these efforts, the transformation of loss-making entities such as PIA and Pakistan Steel remains a contentious issue, highlighting the challenges of balancing economic imperatives with political realities, according to Dawn.

Many PSEs continue to rely heavily on government subsidies and credit guarantees to maintain operations, underscoring persistent governance and accountability deficiencies. The ADB's objectives included enhancing transparency, performance management, and revenue generation in PSEs, aligning their operations with commercial principles to improve service delivery and financial sustainability.

The failure to implement comprehensive reforms has perpetuated the financial woes of PSEs, jeopardising fiscal stability and inhibiting broader economic development, Dawn reported.