Islamabad [Pakistan], April 23 : Pakistan's state-owned entities (SOEs) are the worst in South Asia and their combined losses increasing faster than assets, Dawn reported. The development causes a significant annual drain on scarce public resources and poses a substantial risk to the sovereign.
On an annual basis, Pakistan's state-owned entities together received over Pakist Rupees (PKR) 458 billion in public funds to stay afloat as their combined loans and guarantees increased to almost 10 per cent of GDP PKR 5.4 trillion in FY21 from 3.1 per cent of GDP or PKR 1.05 trillion in 2016, Dawn reported citing the World Bank.
The World Bank has advised a deep-rooted reform programme to reverse the trend. The World Bank said they "impose a significant fiscal drain and pose a substantial fiscal risk on the federal government. It further said that these entities had been incurring losses since FY16 with annual losses averaging at 0.5 per cent of GDP during FY16-20, as per the news report.
The Public Expenditure Review 2023 said, "Pakistan's federal SOEs have been found to be the least profitable in the South Asia region", said the Public Expenditure Review 2023," as per the Dawn report. It further said that the accumulated losses of state-owned entities had become substantial worth 3.1 per cent of GDP in FY20 with the persistent losses.
In order to cover the losses, the Pakistan federal government has been giving direct fiscal support to the state-owned entities (SOEs) in the form of subsidies, loans and equity injects worth 1.4 per cent of GDP in FY21, as per the news report.
Apart from direct support, the Pakistan government has been issuing guarantees for SOEs to secure loans from commercial banks. Pakistan's federal government exposure to SOEs has been rapidly growing and reached 9.7 per cent of GDP in FY21, Dawn reported.
According to the report, the combined fiscal exposure against domestic, foreign loans and guarantees had been rising rapidly with annual growth averaging 42.9 per cent during FY2016-2021.
In FY 2021, 32 per cent of the outstanding guarantees, given through the Pakistan Atomic Energy Commission (PAEC) were against project financing of the K-3 and K-4 nuclear power plants, as per the Dawn report.
The available data indicate that guarantees constituted the bulk of fiscal exposure at 44 per cent of total exposure in FY21. Furthermore, Cash Development Loans and foreign loans were worth 36 per cent and 19.6 per cent of exposure respectively, as per the news report.
The stock of outstanding government guarantees to SOEs has more than doubled since FY16. The federal government's outstanding guarantees to federal commercial SOEs have witnessed a rise from 2.2 per cent of GDP in FY16 to 4.5 per cent of GDP. According to the report, individual SOE performance was mainly dictated by sectoral performance.
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