KARACHI: Despite receiving funds from the Asian Development Bank (ADB) for reforms, the cumulative debt of public sector enterprises (PSEs) reached Rs1.7 trillion, with an additional borrowing of over Rs43 billion during FY24.

The government’s top economic priority is privatising the PSEs and reducing the heavy burden on the budget. This is also a prerequisite for the next IMF loans for Pakistan.

Independent economists have revealed that the government allocated Rs1.267tr for the PSEs in 2024-25, a 104pc hike over the outgoing FY24. The largest allocation will come through subsidies and grants.

The State Bank’s latest report, issued on July 2, shows that PSE borrowing was significantly less in FY23. PSE borrowing during FY24 (July 1 to June 21) was Rs43.5bn, compared to Rs260bn in the preceding year.

The debt stock of PSEs at the end of FY23 was Rs1.687tr, which increased to Rs1.73tr with the addition of Rs43.5tr in FY24.

The PSE debt has been rising despite loans from the ADB for reforms in this sector.

On June 28, 2016, the Economic Affairs Division and the ADB signed a loan agreement of $300m for the Public Sector Enterprises Reform Programme (PSERP). Ishaq Dar was the finance minister who failed to reform the PSEs.

To support the government’s PSE reform agenda, the ADB approved a programmatic approach for the PSERP in June 2016.

“It started with a loan of $300m for sub-programme one and another $300m for sub-programme two in June 2017. The latter aimed to continue and extend the reforms initiated under the first programme,” said an ADB report.

However, the privatisation of loss-making PSEs remained a political question for large public companies that provide jobs in bulk. In an economy with extremely small job provision, the political questions were more important than the economy. However, successive governments failed to bring reforms to improve these PSEs, such as railways, Pakistan Steel, PIA, etc.

Mr Dar had assured the ADB to improve the performance of PSEs, especially in the railways sector.

The programme aimed to improve the corporate governance and accountability of the PSEs and to facilitate the provision of fiscal space for development projects by improving public resource management.

According to an ADB report, many PSEs relied on regular discretionary fiscal transfers and sovereign

credit guarantees to maintain their operations. Large PSEs requiring this support included Pakistan International Airlines, Pakistan Steel Mills, power distribution companies, and Pakistan Railways.

The government aimed to enhance corporate governance, disclosure, and performance management in line with commercial principles to improve PSEs’ accountability for service delivery and revenue generation.

Published in Dawn, July 7th, 2024