Pakistan's State Owned Enterprises

Reform or Ruin?

Introduction

State-Owned Enterprises (SOEs) in Pakistan have long been a paradox—envisioned as pillars of economic progress yet widely perceived as symbols of inefficiency, mismanagement, and fiscal drain. With over 200 SOEs operating across various sectors, their financial burden on the national economy remains a pressing concern. The government's recent push toward privatization and restructuring raises crucial questions about the future of these enterprises: Can Pakistan reform its SOEs to drive economic growth, or will they continue to be liabilities that drain public resources?

The Fiscal Burden of SOEs

Pakistan’s SOEs have historically been sustained by continuous government bailouts. In the fiscal year 2023-24 alone, these enterprises received approximately PKR 1,586 billion in financial support, constituting 13% of the federal budget receipts. Key sectors such as energy, aviation, and transport have been the largest beneficiaries of these subsidies, despite their persistently poor performance.

The power sector, in particular, has been a major liability. Institutions like the National Transmission & Despatch Company (NTDC) and Pakistan Electric Power Company (PEPCO) are marred by inefficiencies, outdated infrastructure, and rampant corruption. Circular debt in the power sector has crossed PKR 2.5 trillion, forcing the government to either increase tariffs or seek IMF-backed reforms to address the structural flaws.

The Privatization Debate

Recognizing the unsustainable nature of these subsidies, the Shehbaz Sharif-led government announced an expansive privatization plan in May 2024. This plan aims to privatize all SOEs except those deemed strategic. The rationale is simple:

1. Reduce the fiscal burden: By selling loss-making enterprises, the government can alleviate financial pressure and redirect funds to development projects.

2. Improve efficiency: Private sector management is generally more streamlined and performance-driven.

3. Encourage foreign investment: Investors, particularly from the Gulf, have shown interest in acquiring shares in Pakistan’s key SOEs.

However, privatization remains a double-edged sword. The sale of assets like Pakistan International Airlines (PIA) and Pakistan Steel Mills has sparked fears of potential job losses, labor unrest, and the erosion of state control over critical industries. Furthermore, past privatization efforts, such as those in the banking sector, have demonstrated that while efficiency may improve, the benefits often do not trickle down to the general public.

The Role of the Pakistan Sovereign Wealth Fund (PSWF)

In August 2023, Pakistan established the Pakistan Sovereign Wealth Fund (PSWF) to manage the assets of profitable SOEs. The fund controls stakes in major companies, including the Oil and Gas Development Company Limited (OGDCL) and National Bank of Pakistan (NBP), and aims to attract foreign investments to stabilize the economy.

However, the IMF has expressed concerns about the PSWF’s operational transparency. Critics argue that placing key national assets under a sovereign fund could dilute governmental oversight, allowing politically connected elites to manipulate these resources. There is also skepticism about whether the PSWF will genuinely benefit Pakistan’s economic structure or merely serve as a tool for short-term capital infusion.

Structural Challenges and Mismanagement

Beyond financial losses, Pakistan’s SOEs are plagued by structural inefficiencies, including:

• Overstaffing and Political Interference: Many SOEs have bloated workforces due to political appointments rather than merit-based hiring. This has resulted in excessive wage bills, with institutions like Pakistan Railways and PIA being overstaffed while still underperforming.

• Lack of Innovation and Modernization: Unlike their private sector counterparts, SOEs have been slow to adopt new technologies, streamline operations, or expand service efficiency.

• Corruption and Poor Governance: Corruption scandals frequently emerge within major SOEs, including misappropriation of funds, procurement fraud, and bureaucratic red tape.

Case Studies: Success and Failure

Pakistan International Airlines (PIA)

PIA has been one of the most controversial SOEs in Pakistan. Once a prestigious airline, it has suffered from operational mismanagement, corruption, and mounting losses. In 2020, the European Union imposed a ban on PIA flights due to safety concerns. However, in January 2025, PIA resumed direct flights to Europe after implementing significant safety reforms. While this represents progress, the airline still carries PKR 600 billion in debt, making privatization an increasingly attractive option.

Pakistan Steel Mills (PSM)

PSM has been non-operational since 2015 yet continues to drain government funds. With over 4,500 employees on payroll despite halted production, it exemplifies the worst-case scenario of state ownership. Multiple attempts to privatize or revive the mill have failed due to bureaucratic inefficiencies and legal disputes over its assets.

International Pressure and IMF Reforms

The IMF has repeatedly pressured Pakistan to reform its SOEs as part of its loan agreements. In 2024, the IMF rejected Pakistan’s proposal to keep loss-making SOEs under government control, insisting on transparency and liquidation of failing entities. The World Bank and the Asian Development Bank have echoed similar concerns, urging Pakistan to create a more competitive economic environment by reducing state intervention.

The Way Forward: Reform, Not Just Privatization

Privatization alone is not a silver bullet. Pakistan must implement comprehensive reforms, including:

1. Corporate Governance Reforms: Establish independent boards free from political influence to ensure professional management of SOEs.

2. Performance-Based Accountability: Introduce Key Performance Indicators (KPIs) for SOEs, linking managerial salaries to operational efficiency and financial performance.

3. Public-Private Partnerships (PPPs): Instead of outright privatization, the government should explore PPP models where private firms manage operations while the state retains ownership.

4. Technology and Innovation Investments: Encourage digital transformation within SOEs to enhance efficiency and reduce operational costs.

5. Transparent Oversight Mechanisms: Strengthen regulatory frameworks to prevent corruption and ensure that privatization deals are conducted transparently.

Conclusion

The future of Pakistan’s SOEs will shape the country’s economic trajectory. While privatization may ease the fiscal burden, it is not a comprehensive solution. Structural reforms, better governance, and increased transparency are necessary to ensure these enterprises contribute positively to Pakistan’s economy rather than remain perpetual liabilities. The government must strike a balance between efficiency and social responsibility, ensuring that essential services are not compromised while aiming for economic sustainability. The coming years will be critical in determining whether Pakistan’s SOEs can be salvaged or if they will remain a relic of mismanagement and lost potential.