The Ministry of Finance has mandated all state-owned enterprises (SOEs) to implement standardized regulations covering operations, financial audits, board appointments, and business plans in a move to meet International Monetary Fund (IMF) conditions and reduce fiscal risks.
The Central Monitoring Unit (CMU) within the ministry issued these directives on October 31, the IMF’s deadline, instructing ministries and divisions to ensure SOEs comply with the SOEs (Governance and Operations) Act 2023 and SOE Ownership and Management Policy 2023.
The new guidelines, designed to standardize SOE operations, include “Business Plan and Statement of Corporate Intent (SCI) Guidelines,” which outline key components such as strategic objectives, environmental analysis, and monitoring frameworks.
Additionally, the CMU has introduced “Public Sector Obligations (PSOs) Costing Guidelines,” detailing activity-based, standard, and marginal costing methods for SOEs fulfilling PSOs.
A central requirement is for SOEs to adopt standard “Regulations on Audit Committee, Risk Management, and Internal Controls.” Audit committees are now tasked with implementing a risk management framework to address financial, operational, and compliance risks, with internal controls to enhance transparency and accountability.
Under the $7 billion Extended Fund Facility (EFF) agreed upon with the IMF, the government committed to having 15 major commercial SOEs adopt business plans and publish SCIs by the end of October, along with IFRS-compliant, externally audited financial statements by December.
These top SOEs, based on asset size, must also appoint boards with a majority of independent directors as mandated by Section 12(2) of the SOE Act.
The finance ministry has also outlined processes for PSO agreements to be finalized for the seven SOEs with the largest government claims by June 2025. SOEs are required to form audit committees led by independent members with financial expertise; the committee cannot include the board chair or CEO. These committees are expected to review interim financial results prior to board approval and hold separate meetings with external and internal auditors.
The government is developing an electronic database to streamline reporting, with the CMU aiming to meet all SOE Act reporting requirements by June 2025. A December 2024 report will assess SOE performance against financial and non-financial benchmarks for FY24.
The IMF has highlighted SOE reforms as essential to reducing losses, improving service quality, and minimizing state intervention. Cumulative losses from SOEs have accounted for over 8% of Pakistan’s GDP since 2016, driven by poor service delivery and significant budgetary support.
The IMF has also set a December deadline for amending the Sovereign Wealth Fund (SWF) Act to ensure SOEs owned by the fund comply with the SOE Act’s governance standards.
Major state-owned companies, including Oil and Gas Development Company Ltd, Pakistan Petroleum Limited, and the National Bank of Pakistan, are valued at around $8 billion and are currently under the Sovereign Wealth Fund’s management.
