Amir Khan

Pakistan's state-owned enterprises (SOEs) are incurring colossal losses amounting to around Rs500 billion annually. The magnitude of this staggering loss demands immediate attention to comprehend its economic implications. The annual Rs500 billion losses incurred by SOEs also constitute a significant portion of the federal government's borrowings from commercial banks. "Pakistan also frequently resorts to borrowing foreign funds for various reasons, including maintaining a specific level of forex reserves. A pivotal rationale behind foreign borrowing is the substantial fiscal gap that persists in the country's finances. It is impossible to fill this gap exclusively with domestic borrowings, prompting the need for foreign funds," says Dr Shahid Iqbal, an economic researcher at the Planning Commission of Pakistan. Talking to WealthPK, he added that a reduction in the fiscal deficit will consequently diminish the necessity for borrowing. "Given that the government shoulders the financial burdens of SOEs, a decrease in their losses will contribute to a smaller fiscal deficit and lessen the demand for borrowed funds."

In simple terms, he said if SOEs were not incurring any losses, the federal government's borrowings could have been reduced by Rs500 billion, which accounts for approximately 13.78% of the total borrowings. He said the government was actively working on a comprehensive policy to accurately assess the annual losses incurred by SOEs and implement remedial measures. He added that the government intends to retain "strategic" SOEs while gradually transitioning other SOEs from the control of line ministries to independent boards of directors. "This strategic shift is seen as a prudent decision and is welcomed." However, the effectiveness of these measures hinges on Pakistan's ability to expedite its privatisation programme and garner strong interest from both local and international investors. Without these efforts, a valuable avenue for earning foreign exchange will remain sealed, and SOEs like Pakistan International Airlines and Pakistan Steel will continue to drain the national exchequer, he observed.

The Planning Commission researcher said in July, the first month of the fiscal year 2023-24, large-scale manufacturing (LSM) witnessed a 1.09% year-on-year contraction, and 3.62% month-on-month. "This trend has persisted as the previous fiscal year also witnessed a substantial 10.26% decline in LSM output, leading to factory closures, intermittent shutdowns, and the loss of hundreds of thousands of jobs." He highlighted that in light of these alarming revelations, the government's commitment to addressing SOEs' financial losses was commendable, though it underscored the urgent need for a comprehensive, long-term solution to the economic challenges Pakistan faced. He said the true extent of these losses might also be more extensive than initially estimated, raising concerns about the country's fiscal deficit and overall economic stability. Furthermore, he said the government needs to address the burden of underestimated domestic debt servicing costs, which could necessitate additional taxes and exacerbate the challenges facing Pakistan's economy.

Credit: INP-WealthPk