Answer to dilemma is sure-fire sale of bankrupt SOEs in unchaotic and transparent manner
BRUSSELS:
Rule number one is that the role of government is to govern and not run a business. State-owned enterprises (SOEs) have been a huge drain on Pakistan’s fiscal solvency since decades. Staggering losses over the years and the accumulated liabilities absorbed by the national exchequer (read: taxpayers) through subsidies, guarantees and debt have suffocated Pakistan.
Total SOEs’ liabilities have climbed to Rs9.6 trillion, roughly half of the annual federal budget. Unfunded pension obligations alone stand at Rs2 trillion. Out of the Rs13 trillion collected in federal taxes, about Rs2.1 trillion was redirected towards SOEs in 2025 just to keep them afloat. With mounting losses and negative equity of these white elephants, a comprehensive plan for wholesale privatisation of SOEs needs to be developed and, more importantly, implemented on an urgent basis. Yet the current government, like those before it, keep procrastinating the urgent need to privatise these entities.
So, the question to ask is why? The most obvious answer is “retaining control” not for economic rationalisation but for political control. It is the political leadership and state bureaucracy that “throw a monkey wrench” into any plans for privatisation.
Their combined objective is not to increase their economic value but to use them as tools to maintain a patronage system to reward loyalists to SOE boards that exist in name but lack authority, a management that has never run a private business, a bloated employment with excess wages and benefits.
The subordination of economic efficiency to their self-interests inevitably means an incentive to “drag their feet” and/or backtrack on reforms. Bureaucratic inertia and political reluctance, coupled with resistance from vested interests, continues to stall meaningful change, adding to the burden of taxpayers.
The annual report on the federal SOEs (2024-2025) by the Central Monitoring Unit (CMU) in the Ministry of Finance highlights the deep-rooted problems of the public sector to the poor leadership that is unable to run it as a viable commercial enterprise. The CMU recommendations – stronger boards, timely audits, better disclosure and performance-based accountability – are not new.
The CMU fails to understand the nature of business. SOEs cannot function as a sustainable business, any effort to restructure with half measures or cosmetic changes will only give the same results and be an arduous exercise in futility. Private sector businesses with their boards, management and employees are beholden and answerable to their shareholders. Financial health of these companies are annually scrutinised to improve performance and increase economic value.
SOEs on the other hand are beholden and answerable to politicians and bureaucrats, who care less about financial health because it’s not their money on the line, it’s the taxpayers’ money and it is they who “bear the brunt” of these massive losses.
So, what’s the answer to this dilemma? Nothing but a sure-fire sale of these bankrupt SOEs must be done urgently in an unchaotic and transparent manner. Questionable opaque methods of transferring the assets of struggling or bankrupt SOEs to private entities, foreign or domestic, must be avoided. The exit of these SOEs will create opportunities for the private sector to eclipse the state sector as the most important engine of growth, productivity, and job creation in finance, energy, utilities, transport, manufacturing and mining.
Revenues from the privatisation sales will go a long way to help Pakistan’s fiscal quandary, but even more. So the removal of these businesses from Pakistan’s ownership ledgers eases the headache for the government to oversee their operations so that it can focus on governance and utilise a significant portion of public resources on development, education and healthcare rather than keeping these loss-making state entities alive.
The writer is a philanthropist and an economist based in Belgium
