EDITORIAL: The fiscal performance of State-Owned Enterprises (SOEs) is deteriorating fast despite the government’s mantra of improving governance and cutting down the slack. This is evident from the recently published biannual report on SOEs by the Ministry of Finance, which has stated that the net fiscal contribution of SOEs declined to a mere Rs36 billion in 1HFY26, compared to Rs427 billion in the same period of previous year.
Now the IMF is linking its board’s approval of the tranche to the passage of amendments to the SOEs law. That would result in better reporting and governance and help in attaining overall efficiency in the medium to long term. However, in the short run, there could be higher losses due to better accounting and provisioning – especially in the case of PSO, where huge RLNG carrying costs are being hidden.
In 1HFY26, overall aggregate losses remained flat at Rs343 billion. However, profits dipped by 7 percent to Rs243 billion. Resultantly, net adjusted profits dipped by 30 percent to Rs81 billion.
The issue is that profits are concentrated among a few companies – the top four companies, OGDC, NBP, PPL and PARCO, contribute 40 percent of profits. On the other hand, losses are concentrated in power and infrastructure companies, with NHA at the top, followed by a few power distribution companies. The story is nothing new, as more of the same continues.
What raises eyebrows is the nearly one-third increase in government support for SOEs to Rs804 billion in 1HFY26. The support is in the form of equity injections, loans, subsidies, and grants. The highest increase is in equity injections – up by 190 percent to Rs225 billion – mainly in the power sector related to circular debt. That is how the circular debt stock is being kept from growing.
Government support for SOEs is significantly eating into taxpayers’ contribution. Based on 1HFY26 FBR revenues, every ninth rupee of tax revenue went towards supporting SOEs. That is staggering.
Thus, overall net fiscal inflows are down to one-tenth of their previous level as described at the start. However, that is not where all the worry lies. There is more to the story. For one, SOE debt is growing at a rapid rate – up by 14 percent to Rs10.1 trillion in the period under review. The buck does not stop here, as there are also Rs2.1 trillion in sovereign guarantees and Rs198 billion in unfunded pension liabilities. The cherry on top is Rs3.9 trillion in combined gas and power circular debt.
All these are adding to the government’s exposure to SOEs, while returns to the government are diminishing. The scorecard is better in the financial and oil and gas sectors, from where the profitability is coming. On the other hand, the weaker links are infrastructure and power, which are adding to direct and indirect debt, apart from accumulating losses.
The government, under the IMF’s guidance, is transitioning to full IFRS accounting, and that may increase provisioning in the oil and gas sector by around Rs500 billion.
The bottom line is that despite having a privatization programme and a stated policy of reducing SOE losses, the overall picture is not improving. More needs to be done. Now the IMF is pushing for amendments that will expose the losses where they are. There will be no more hiding under the carpet, or at least less of it.
Let’s hope better reporting and all will push the government to undertake much-needed reforms and bring efficiency to the sectors where it is required.
Copyright Business Recorder, 2026