Moaaz Manzoor

The persistent financial losses of Pakistan's State-Owned Enterprises (SOEs), driven by inefficiencies, poor leadership, and structural weaknesses, are exacerbating fiscal pressures, necessitating urgent reforms to ensure long-term economic stability, reports WealthPK.

The Ministry of Finance's latest report underscores the mounting financial strain caused by SOEs, with cumulative losses reaching Rs851 billion in FY24. Despite increased revenue, losses persist due to inefficiencies, high financial leverage, and poor liquidity management. The government's heavy fiscal support — amounting to 13% of federal budget receipts — highlights the urgent need for structural reforms to curb these losses and improve operational efficiency.

Speaking with WealthPK, Muhammad Armughan, a senior researcher at the Federation of Pakistan Chambers of Commerce & Industry (FPCCI), attributed SOE inefficiencies to structural flaws and behavioural resistance within these institutions. "Leadership within SOEs suffers from significant mindset deficiencies," he explained. "While certain SOEs generate profits, their gains are overshadowed by underperforming entities that erode economic value.

The disparity between successful and loss-making SOEs underscores the urgent need for visionary leadership that emphasises accountability and strategic workforce management," he added. He proposed targeted reforms such as merit-based leadership appointments and performance-driven staffing policies. "Underperforming employees should either be terminated or placed on basic-salary leave, replacing them with dynamic young professionals on contractual terms," he suggested.

Armughan said these measures would help inject innovation and efficiency into stagnant organisations. Ahmad Mobeen, a senior economist at S&P Global Market Intelligence, highlighted the additional fiscal strain posed by SOEs, emphasising their role in Pakistan's budgetary imbalance. "Despite repeated reform attempts, structural inefficiencies persist, amplifying the burden on public finances," he stated. "The narrow tax base and reliance on indirect taxation further complicate the government's efforts to manage these losses," he noted.

"Addressing SOE inefficiencies is imperative for long-term fiscal stability," Mobeen stressed. He said that while policymakers acknowledge the necessity of reform, progress remains slow due to political and institutional inertia. "A commitment to sustained reform and policy continuity is critical," he said, emphasising that Pakistan's fiscal health will remain vulnerable without consistent efforts.

The financial losses of SOEs not only drain public resources but also signal deeper governance and policy failures. Without decisive action, these inefficiencies will continue to hinder economic progress, forcing the government to divert critical funds from development initiatives. The need for reform is undeniable, and its success hinges on a combination of competent leadership, fiscal discipline, and structural overhauls to ensure long-term sustainability.

Credit: INP-WealthPk