The federal government provided financial support of Rs436 billion to small and medium state-owned enterprises (SOEs) in the six months ending December 2023, amounting to over 7% of the federal budget’s annual receipts.
The bi-annual report for fiscal year 2024, issued by the Central Monitoring Unit (CMU) of the Finance Division, revealed the breakdown of the support: Rs120 billion in grants, Rs231 billion in subsidies, and Rs85 billion in loans. Notably, no equity injections were made during this period.
According to the report, state-owned enterprises reported losses of Rs408 billion during the first half of fiscal year 2024, bringing cumulative losses since 2014 to Rs5.9 trillion as of December 2024.Â
The report also noted that SOEs contributed Rs200 billion in taxes, a 14% decrease compared to the preceding six months. Gross revenues for federal SOEs totaled Rs7.011 trillion, marking a 15% increase from the prior year’s corresponding period.Â
However, net aggregate losses stood at Rs147 billion after excluding Pakistan Sovereign Wealth Fund (PSWF) entities.
The report emphasized the heavy fiscal reliance of many SOEs, warning that such dependency creates inefficiencies and reduces incentives for operational improvements. To counter this, the report recommended that SOEs develop self-sustainability plans focused on enhancing working capital management, restructuring debt, and improving operational efficiencies to better manage debt servicing costs.
Extended receivables and payables cycles were identified as a significant strain on the working capital of SOEs, leading to liquidity challenges. The report suggested that SOEs streamline receivables and payables management, ensure prompt collection, negotiate favorable payment terms with suppliers, and implement stricter credit control measures to improve cash flow.
It also highlighted the risks posed by government guarantees and other contingent liabilities, which could lead to unexpected financial burdens if materialized. The guarantees provided by the government totaled Rs1,400 billion, with the report noting that the valuation methodology for these guarantees needs to align with international standards.
The report proposed adopting advanced financial models, including option pricing models, credit risk models, and Monte Carlo simulations, to value guarantees more accurately. It recommended incorporating variables like Probability of Default (PD), Exposure at Risk (EAR), and Loss Given Default (LGD) into risk assessments.
Additionally, contingent liabilities related to public-private partnerships (PPPs) should undergo detailed analysis by the Public-Private Partnership Authority (P3A) in line with Public Investment Management Assessment (PIMA) provisions, the report said.
The findings underline the urgent need for SOEs to implement robust financial and operational reforms to reduce their reliance on government support and address fiscal vulnerabilities.
