Islamabad: Pakistan’s state-owned entities (SOEs) are the worst in South Asia and their combined losses growing faster than assets, resulting in a significant annual drain on scarce public resources and posing a substantial risk to the sovereign.
On an annual basis, they together swallow more than 458 billion PKR in public funds to stay afloat as their combined loans and guarantees surged to almost 10pc of GDP (5.4 trillion PKR) in FY21 from 3.1 percent of GDP or 1.05 trillion PKR in 2016, according to the World Bank that advised a deep-rooted reform programme to reverse the trend, reports Dawn news.
They “impose a significant fiscal drain and pose a substantial financial risk on the federal government”, said the World Bank, adding that these entities had been incurring losses since FY16, with annual losses averaging at 0.5 percent of GDP over FY16-20.
“Pakistan’s federal SOEs have been found to be the least profitable in the South Asia region,” said the Public Expenditure Review 2023, adding that with the persistent losses, the accumulated SOE losses had become substantial, amounting to 3.1 percent of GDP in FY20, Dawn reported.
Federal government exposure to SOEs, defined as the outstanding stock of guarantees and government loans to SOEs, has been rapidly increasing and stood at 9.7 percent of GDP in FY21.
The report noted that combined fiscal exposure against domestic and foreign loans and guarantees had been increasing rapidly with annual growth averaging 42.9 percent over FY2016-2021.
The report said that individual SOE performance was largely dictated by sectoral performance. Although the primary reasons for SOE losses differ, they are typically related to unresolved corporate governance issues, sector regulations, an underestimation of the cost of the provision in complete restructuring and insufficient current subsidies.
SOE losses are concentrated in the power, infrastructure, and transport sectors, and in the aggregate, outweigh profits from profitable SOEs.
Although a sizable number of commercial SOEs generated profits in FY20, they were concentrated in the oil and gas sector, Dawn reported.
IANS