A NEW World Bank report listing Pakistan’s state-owned entities as the worst in South Asia must have come as a shock to those who still see bankrupt companies like PIA as a source of national pride. Others aren’t surprised at all. That the combined losses of Pakistani SOEs are increasing at a faster pace than their assets, thus putting extra strain on already scarce public resources, isn’t new information either. On an annual basis, the bank points out, the government spends more than Rs458bn of taxpayers’ money to keep these businesses afloat although many of them should have been closed or sold a long time ago. Their combined loans and guarantees surging to almost 10pc of GDP in 2021 from 3.1pc of GDP in 2016, shows the kind of stress these entities are putting on the budget, while contributing to high fiscal deficits over the last several years. They “impose a significant fiscal drain and pose a substantial financial risk to the federal government”, said the report. The country’s federal SOEs, it added, are the least profitable in the region.

The bank has advised a deep-rooted reform programme to reverse the trend since the government is forced to provide direct financial support to these entities in the form of subsidies, loans and equity injections, totalling 1.4pc of GDP, as well as issuing guarantees on their behalf to help them secure loans from commercial banks. The outstanding stock of guarantees and loans to these SOEs has rapidly increased at an annual rate of 43pc, and stood at 9.7pc of GDP during 2016-21. Indeed, the performance of each SOE, or the lack of it, varies from sector to sector, and depends on the sectoral policies and governance structure of the companies concerned. The losses are mostly concentrated in the power and transport sector. Others such as oil and gas companies are still generating profits. This contrast in performance encourages many to suggest that the loss-making firms can still be salvaged through better management without disinvesting them. That is a debatable view. The fact is that public companies making profits could be much more efficient and profitable if turned over to private hands. There’s hardly any ray of hope for most SOEs. Sooner or later, even the profitable ‘employment exchanges’ will be looking for support from the taxpayers’ money in order to survive.

Published in Dawn, April 25th, 2023