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Sunday, July 14th, 2024

Pakistan’s public sector enterprises are burdened with a mounting debt of PKR 1.7 trillion

The Pakistani government’s efforts to reform public sector enterprises (PSEs) are being hampered by persistent challenges, as recent fiscal data and international funding initiatives show, reports Dawn.

Despite substantial loans from the Asian Development Bank (ADB) to boost reforms, the cumulative debt of public sector enterprises has risen to PKR 1.7 trillion, and additional borrowings will exceed Rs 43 billion in FY24.

Economic priorities underscore the urgent need to privatize public sector enterprises to ease pressure on the national budget, which is also a key step to obtaining loans from the International Monetary Fund (IMF) in the future. The 2024-25 budget saw a dramatic increase in allocations for public sector enterprises, reaching PKR 1.267 trillion, which was mainly earmarked for subsidies and grants, representing a 104 percent increase compared to the previous fiscal year.

The latest State Bank of Pakistan report shows that PSE borrowings declined significantly during FY23, a sharp departure from the PKR 43.5 billion borrowed in FY24 alone, further adding to the existing debt burden. Despite substantial funding from the ADB, which in 2016 launched the US$300 million Public Sector Enterprise Reform Program (PSERP) aimed at enhancing corporate governance and operational efficiency, meaningful reforms have remained elusive.

Former finance minister Ishaq Dar had committed to improving the performance of public sector enterprises during his/her tenure, particularly in sectors such as railways, Pakistan Steel and Pakistan International Airlines (PIA). However, political sensitivities over the privatisation of key public sector enterprises, important employers in a jobs-starved economy, have hampered progress on crucial economic reforms.

The ADB report said, “ADB’s support for sub-programme one began in June 2016 with a US$300 million loan, followed by an additional US$300 million for sub-programme two in 2017, aimed at sustaining and expanding initial reform efforts.” 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 public sector enterprises rely heavily on government subsidies and loan guarantees to sustain their operations, highlighting persistent governance and accountability deficiencies. ADB’s objectives included enhancing transparency, performance management, and revenue generation in public sector enterprises, aligning their operations with commercial principles to improve service delivery and financial sustainability.

The failure to implement comprehensive reforms has exacerbated the financial problems of public sector enterprises, threatening fiscal sustainability and impeding macroeconomic growth, reports Dawn.

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