ISLAMABAD: Accumulated losses of state-owned enterprises (SOEs) surged 22 percent to Rs7.22 trillion by the end of December 2025 from Rs5.89 trillion a year earlier, as loss-making entities burned Rs2.8 billion per working day while drawing nearly Rs6.6 billion daily in government fiscal support, turning the SOE portfolio into a growing sovereign balance-sheet risk.
According to the Federal State-Owned Enterprises Bi-Annual Report H1-FY2026 (July 2025 to December 2025), prepared by the Central Monitoring Unit (CMU) of the Finance Division, aggregate losses of SOEs stood at Rs342.8 billion during July-December 2025, compared to Rs342.9 billion in the corresponding period of fiscal year 2024.
The report noted that government fiscal support rose 31 percent to Rs804 billion during the first half of fiscal year 2026.
READ MORE: H1FY26: SOEs incur Rs342.8bn losses
The report said aggregate profits declined 7 percent to Rs423.3 billion during the first half of fiscal year 2026 from Rs457.2 billion during the same period a year earlier, reducing net adjusted profit by 30 percent to Rs80.5 billion from Rs114.3 billion.
The deteriorating profitability was accompanied by a sharp rise in the government’s fiscal support to SOEs, which increased to Rs804 billion from Rs616 billion. Equity injections alone surged 190 percent to Rs224.6 billion, while government loans increased 79 percent to Rs164.8 billion. Subsidies remained broadly stable at Rs332.2 billion, whereas grants declined 27 percent to Rs82.3 billion.
The CMU report noted that the increase in equity injections was primarily linked to clearing power-sector circular debt obligations, but circular debt nevertheless increased by Rs143 billion during the six months.
The fiscal burden becomes more pronounced when measured against government receipts. SOEs contributed Rs839 billion to the federal government during H1-FY2026, down 19 percent from Rs1.04 trillion a year earlier.
The decline was mainly driven by a 35 percent fall in non-tax revenues and a 29 percent reduction in interest receipts, although dividends increased 26 percent and tax revenues rose 10 percent.
Consequently, the net fiscal flow—the difference between SOE contributions and government support—collapsed to just Rs35.8 billion from Rs427 billion, while the Fiscal Efficiency Index fell from 1.64x to 1.04x.
The report warned that SOEs sector is approaching fiscal breakeven from a sovereign cash-flow perspective. If this trend continues, SOEs risk transitioning from marginal fiscal contributors into net fiscal consumers, thereby increasing pressure on Pakistan’s already constrained fiscal position.
Viewed in a broader fiscal context, the federal government collected Rs7,065 billion in tax revenues during fiscal year 2025, of which Rs 804 billion approximately 11 percent was routed back into SOEs through subsidies, equity injections, grants, and loans which means roughly 1 out of 9 PKR collected is routed back to SOES from the federal budget.
The OCRR for loss-making SOEs improved marginally from 0.83 to 0.84. Despite this slight improvement, the ratio remains materially below unity, implying that for every Rs100 spent on operational activities, only Rs84 was recovered through operating revenues.
Profit-making SOEs maintained OCRRs above unity; however, the ratio declined slightly from 1.11 to 1.10. While still positive, this gradual erosion suggests diminishing marginal revenue generation relative to operating expenditure growth. ROE of overall portfolio is also very low, sitting at 1.25 percent. This along with 32 percent asset turnover (on annualised basis) and high overall leverage of over 6x keeps the SOE portfolio volatile and prone to shocks.
The loss burden remained heavily concentrated in infrastructure, transport and power-sector entities. The National Highway Authority posted the largest loss of Rs124.7 billion during H1-FY2026, taking its accumulated losses to Rs2.17 trillion.
Quetta Electric Supply Company reported a loss of Rs35.3 billion, Sukkur Electric Power Company Rs34.9 billion, Pakistan Railways Rs29.4 billion, Peshawar Electric Supply Company Rs23.7 billion, PIA Holding Company Rs21.6 billion and Hyderabad Electric Supply Company Rs18 billion.
The CMU attributed the DISCO losses mainly to technical losses exceeding NEPRA benchmarks, persistent under-recoveries, and circular debt arising from operational inefficiencies. Circular debt flow attributable to DISCO inefficiencies reached Rs112 billion, with another Rs31 billion arising from under-recoveries.
Legacy entities such as PIA Holding Company, Pakistan Railways, and the National Highway Authority remain among the largest structural drags on the portfolio due to accumulated liabilities, debt servicing pressures, and embedded quasi-fiscal obligations.
Pakistan Railways alone represents a severe long-tail sovereign exposure, requiring annual operational grants approaching Rs 60 billion while simultaneously carrying materially unfunded and partially unrecognised pension obligations that continue to accumulate outside fully actuarialised funding frameworks, thereby creating a growing unfunded sovereign liability profile.
The report also highlighted the worsening debt position of the SOE portfolio. Total debt, excluding guarantees, increased 14 percent to Rs10.1 trillion, including Rs2.58 trillion in foreign re-lent loans, Rs3.10 trillion in bank borrowings and Rs2.10 trillion in cash development loans. Accrued interest rose 9 percent to Rs2.18 trillion, while unfunded pension liabilities increased 11 percent to Rs1.98 trillion.
Meanwhile, combined power and gas circular debt stood at Rs3.38 trillion on an IFRS basis, although the report separately noted that gross circular debt was approximately Rs4.9 trillion when additional restructuring facilities and late-payment surcharge were included.
The total circular debt on a gross basis amounts to Rs1100 billion (payment outstanding to IPPs and other GENCOs) plus Rs 694 billion drawdown facility regarding CD Debt restructuring plus Rs 2000 billion Gas Sector payables plus Rs 1100 billion Late Payment Surcharge; amounts to approximately Rs 4900 billion.
The CMU said the SOE balance sheet also weakened, with total equity falling 3 percent to Rs6.41 trillion and total assets declining 2 percent to Rs37.11 trillion, while liabilities remained high at Rs30.7 trillion.
The report identified a sharp contrast between sectors. Oil and Gas led business-plan performance with a 75 percent score, followed by Financial at 66 percent and Infrastructure at 55 percent, while Power remained the weakest at only 46 percent.
It said persistent technical losses, weak recovery targets, and ineffective implementation in the power sector meant that circular debt would continue to accumulate unless structural reforms were undertaken.
The CMU estimated that loss-making SOEs were burning around Rs2.8 billion per working day, while government fiscal support amounted to nearly Rs6.6 billion per day. It warned that the SOE portfolio had become a significant sovereign balance-sheet vulnerability with implications for fiscal sustainability, public debt, creditworthiness and macroeconomic stability.
The report called for deep structural reforms, performance-linked government support, improved cost recovery, stronger governance and restructuring of chronically loss-making entities rather than continued unconditional fiscal injections.
Copyright Business Recorder, 2026