KARACHI: Credit to public sector enterprises (PSEs) soared to Rs282 billion in the first 10 months of the current fiscal year compared to just Rs14bn in the same period of last year reflecting the extremely poor financial health of the state-run companies.

Data issued by the State Bank of Pakistan on Tuesday showed the growth of credit to PSEs was abnormally high compared to previous years’ net withdrawal of Rs43bn at the end of FY22 and Rs53bn in FY21.

Bankers said the flow of loans reflects the critical economic conditions of these state-run enterprises. Most of the PSEs were incurring losses for many years and the government keeps them floating with taxpayers’ money.

A senior banker said that the loss-making Pakistan International Airlines (PIA) accounted for the lion’s share in overall bank lending to PSEs. The national carrier has been incurring losses for the last more than a decade but the Covid-19 and skyrocketing oil prices have further deteriorated its financial health.

However, the banker did not disclose the amount borrowed by the PIA during July-April FY23 but said power sector companies were also borrowing heavily due to losses.

Despite a massive hike in tariffs, the power sector companies’ losses continued rising mainly because these companies failed to receive the due amounts from their jurisdictions.

Amid rising circular debt, the power sector distribution companies have been borrowing extensively, said the banker. The last figure available about the circular debt was Rs2.67 trillion during the first 8 months of the current fiscal year.

The total circular debt at the beginning of the fiscal year was Rs2.253tr which increased by Rs419bn.

The increasing circular debt is creating another serious problem like the current account deficit while many Chinese power companies have been asking the government to pay their dues.

Almost all past governments during the last 20 years did not give due attention to reviving loss-making PSEs. The PDM government has not attempted to resolve this issue despite facing a serious shortage of liquidity.

The prime concern is that these loss-making public companies have over 45,000 employees and for obvious reasons, no government affords to stop feeding them with taxpayers’ money to avoid political noise.

Published in Dawn, May 10th, 2023