Pakistan's state-owned enterprises are imposing a growing burden on public finances, with mounting losses, weak governance and rising fiscal support exposing a system where accountability remains elusive despite repeated reform pledges.
The latest official data shows federal SOEs recorded a net loss of Rs123 billion in 2024-25, a sharp deterioration from Rs30 billion the previous year. Revenues have declined, profitability has weakened and the overall financial position continues to erode, even as the government injects substantial resources to keep these entities afloat.
At the core of the problem lies a widening imbalance between what these enterprises consume and what they contribute. Government support reached over Rs2 trillion during the year-equivalent to roughly 16 percent of federal tax revenues-while the net return to the exchequer collapsed to just Rs41 billion. This marks a steep fall from the previous year's contribution of Rs458 billion.
Losses are heavily concentrated in key sectors. Entities such as the National Highway Authority, power distribution companies and Pakistan Railways account for large deficits, while a handful of firms in oil, gas and banking generate the bulk of profits. This imbalance leaves the overall portfolio dependent on a narrow base of relatively strong performers.
The structural weaknesses extend beyond financial metrics. Returns on invested capital average just 2.2 percent, far below the estimated cost of capital of around 15 percent. In effect, the state continues to absorb losses that would be untenable in a private-sector context.
Fiscal pressures are compounded by persistent inefficiencies. Circular debt remains a central concern, particularly in the power and gas sectors, where liabilities have been reduced largely through accounting adjustments and equity injections rather than operational improvements. Low recovery rates, technical losses and theft continue to generate new liabilities.
Governance failures further undermine performance. Boards often lack technical expertise; leadership turnover is frequent and audits are not consistently completed on time. Pension obligations, exceeding Rs2 trillion, add another layer of long-term strain.
Despite these challenges, reform efforts have struggled to gain traction. Analysts argue that the issue is less about the absence of policy frameworks and more about the lack of accountability. Authority is concentrated within ministries, yet responsibility for outcomes remains diffused, allowing losses to persist without consequence.
In particular, the role of Principal Accounting Officers has come under scrutiny. While they oversee financial decisions, including subsidies and guarantees, their performance assessments remain disconnected from the outcomes of the enterprises under their control. This disconnects, critics contend, weakens incentives for meaningful reform.
Similarly, the structure of corporate boards has drawn criticism. Senior bureaucrats often dominate these boards while simultaneously exercising control over policy and budgets, blurring lines of responsibility and limiting effective oversight.
Another complicating factor is the blending of commercial and political objectives. Many enterprises are tasked with delivering public services-such as subsidised tariffs or loss-making routes-without transparent funding mechanisms. This obscures performance evaluation and shifts the burden onto balance sheets rather than budgets.
The government has defended its approach, highlighting a reduction in aggregate losses over recent years and a marginal net positive fiscal contribution. It has also pointed to privatisation initiatives and governance reforms as evidence of progress.
However, critics argue that such claims overlook deeper trends. While losses among weaker entities have declined slightly, profits from stronger firms have also fallen, leading to an overall deterioration. Moreover, increased fiscal support-through loans, guarantees and equity injections-suggests a growing reliance on public resources.
Privatisation efforts remain uneven. While some progress has been made, including the sale of Pakistan International Airlines, concerns persist over transparency and the structure of transactions. Other planned divestments and restructuring initiatives are still at early stages.
The broader economic implications are significant. State-owned enterprises employ around 6 million people, accounting for roughly 11 percent of non-agricultural employment. Their performance therefore has direct consequences for labour markets, investment and fiscal stability.
Yet the system continues to resist fundamental change. Closure or restructuring of failing entities is often delayed, with decisions postponed in favour of continued support. This prolongs inefficiencies and diverts resources from more productive uses.
The path forward is widely acknowledged but politically sensitive. Proposals include clearer assignment of responsibility, stronger parliamentary oversight, separation of social obligations from commercial operations and predefined triggers for restructuring or exit.
Without such measures, the cycle is likely to persist. Losses will continue to accumulate; fiscal pressures will intensify and reform efforts will remain confined to incremental adjustments.
The message emerging from the latest figures is unambiguous. Pakistan's state enterprise sector is not merely underperforming-it is exerting increasing strain on the public purse. Unless accountability is enforced and structural reforms implemented, the cost of inaction will continue to rise.