This is the third article in a five-part series on Pakistan’s SOE reform. The first, SOE Reform: Strengths and Flaws, and the second, SOE Reform: From Framework to Consequences, were published in this paper. This article argues that privatisation must be the end goal for most commercial SOEs.
The fourth and fifth articles will examine Pakistan’s privatisation history and how the process can be made more effective.
Pakistan has now spent over two years building a governance framework for its state-owned enterprises and beginning — haltingly — to enforce it.
Both efforts are necessary. Neither is sufficient.
The honest conclusion of any serious analysis of Pakistan’s SOE sector is this: the state should not be running most of these enterprises at all.
This is not an ideological position. It is a governance conclusion.
The structural problem reform cannot fix
Pakistan has 117 federal SOEs, including 84 commercial entities. Their total assets are approximately Rs. 38 trillion — nearly one-third of GDP. Their revenues are Rs. 12.4 trillion, roughly 11 percent of GDP. Yet the portfolio recorded a net adjusted loss of Rs. 123 billion in FY2025 — a deterioration of over 300 percent in a single year. Fiscal support rose 37 percent to Rs. 2.08 trillion. At that rate, Pakistan transfers approximately Rs. 5.7 billion to its SOE portfolio every day.
These numbers do not describe temporary under-performance. They describe a structural ownership problem.
Governance reform can reduce the damage. Stronger accountability can improve performance. Better boards can impose discipline. But none of these can fully overcome the central weakness of state ownership: failure does not carry sufficient consequences.
In a government-owned enterprise, directors are appointed through political processes and rarely bear personal cost when the entity fails. Management operates without the discipline of market competition or the credible threat of insolvency. Capital allocation is often shaped by political priorities rather than commercial logic. Losses are absorbed by the public budget — invisibly, incrementally, and without limit.
No board composition requirement, no business plan mandates, no monitoring unit, and no consequence ladder can fully compensate for the absence of private ownership discipline.
Governance reform can make state ownership less bad. It cannot make state ownership good.
The case for privatisation — and its limits
Pakistan’s SOE Policy 2023 rightly makes privatisation the default outcome for commercial SOEs that are neither genuinely strategic nor essential public services. That is the correct policy position. The problem is that it remains more position than programme.
The case for privatisation rests on three pillars.
The first is fiscal. Every rupee used to support an underperforming SOE is a rupee unavailable for schools, hospitals, debt reduction, or social protection. Providing over Rs. 2 trillion in annual fiscal support — year after year, for decades — to a chronically loss-making portfolio is not a sustainable policy choice. It is a crisis that deepens every day it continues.
The second is governance. Private ownership creates what public ownership struggles to manufacture: real skin in the game. Private owners gain when an enterprise performs and bear the cost when it fails. They have stronger incentives to appoint competent management, improve efficiency, protect capital, and resist waste.
The third is economic. SOEs that dominate commercial sectors crowd out private investment, suppress competition, and reduce productivity. Privatisation is therefore not only about fixing SOEs. It is about creating space for a more competitive economy.
The approach to privatisation must also be realistic. It is not the answer for every SOE. Entities performing genuinely essential public functions, natural monopoly infrastructure, or services that private capital will not provide may require continued public ownership or strong regulation. The SOE Policy’s classification framework — strategic and essential — must be applied rigorously. Parking every difficult entity in the “strategic” category to avoid hard decisions is not classification. It is evasion.
Privatisation is also not a substitute for regulation. Transferring ownership without adequate regulatory capacity can turn public monopolies into private ones. Ownership reform and regulatory reform must move together. Nor can privatisation ignore people — labour transitions, retraining, and voluntary separation must be handled responsibly. Protecting workers, however, cannot mean preserving loss-making enterprises indefinitely.
One transaction is not a programme
Here is the most uncomfortable fact in the reform story.
In over two years of a government that has declared privatisation a strategic priority — under sustained IMF programme pressure — Pakistan has completed only one major commercial privatisation: PIA, whose transfer process is still being finalized. In December 2025, a consortium led by Arif Habib Corporation acquired a 75 percent stake for Rs. 135 billion, exceeding the government’s minimum reference price and marking a genuine breakthrough after decades of failed attempts. That achievement deserves credit. But it also proves how hard the process is — requiring repeated failed auction attempts, extensive debt restructuring, and a redesigned transaction structure before investors engaged seriously.
One transaction in two years is not enough — especially when the remaining entities in the 2024-29 programme are mostly in early stages and the portfolio continues to impose a heavy fiscal cost every day.
There is also a tendency in Pakistan’s policy debate to treat governance reform and privatisation as sequential alternatives: first reform the SOE, then consider privatisation if reform fails. This misunderstands the relationship between the two. Governance reform without privatisation remains a permanent burden on the state — one that every new government can reverse. Privatisation with governance reform is different. It transfers the ongoing management burden to private owners with structural incentives to carry it, converts a recurring fiscal obligation into a transaction challenge, and frees the state to focus on functions it is genuinely better placed to perform: education, health, regulation, infrastructure, and social protection.
The governance framework examined in the first article and the consequence mechanisms demanded in the second are both necessary. But they are means, not ends. For Pakistan’s commercial SOE portfolio, the end must be a state that owns less, governs better, and deploys its limited capacity where markets cannot serve the public interest.
What matters now is not the quality of legislation or the success of a single transaction. What matters is whether Pakistan can build a sustained privatisation programme that reduces the state’s commercial footprint, returns fiscal resources to productive use, and creates a genuinely competitive economy — one that delivers better services, better jobs, and better fiscal outcomes for its people.
Not privatisation as ideology. Not privatisation as a slogan to satisfy creditors. Not privatisation announced loudly and abandoned quietly.
Privatisation as a deliberate, sequenced, and well-prepared programme — because private ownership creates the accountability, discipline, and incentives that the SOE governance framework alone cannot.
The state cannot govern its way out of a structural ownership problem.
It must solve that problem by owning less.
Copyright Business Recorder, 2026
The writer, a former managing partner of a leading professional services firm, is a public sector governance and public financial management specialist and has done extensive work on governance in the public and private sectors. He posts on X @Asad_Ashah