State-owned enterprises’ losses rise 23% to Rs 905 billion in FY23

• Despite the financial problems, the government’s support to state-owned enterprises stood at Rs 1,021 billion.
• Liabilities increased to Rs 2.97 trillion and net assets fell to Rs 5.49 trillion.
• Operational inefficiencies have a negative impact on the profitability of state-owned enterprises.

Pakistan’s state-owned enterprises (SOEs) incurred a cumulative loss of Rs 905 billion in the fiscal year 2022-23, an increase of 23% from the fiscal year 2021-22.

This was disclosed in a report titled Annual Comprehensive Report on Federal State-Owned Enterprises (SOEs) for Fiscal Year 2023 released by the Central Monitoring Unit (CMU) of the Ministry of Finance on Tuesday.

These losses resulted in a total net loss of Rs.202 billion, up 25% from the same period last year. Liabilities also rose to Rs.29,721 billion, up 20%, indicating an increase in financial leverage.

As a result, net assets declined to Rs 5.49 trillion, down 2.55%. The federal government remains concerned about overall portfolio volatility, with value at risk at high levels.

In the power sector, especially the distribution companies (DISCOs), losses remain prominent. Despite the government allocating Rs 759 billion to support the sector, the total losses in the power sector are still as high as Rs 304 billion.

Moreover, entities in the infrastructure sector such as the National Highways Authority (NHA) incurred high financial costs, adding to the overall loss situation.

The railways sector has also incurred mounting losses, with cumulative losses amounting to Rs 5,59,500 crore over the past decade.

The government of Pakistan has provided a total of Rs 1,021 billion in support in the form of capital injection (Rs 267 billion), grants (Rs 223 billion), subsidies (Rs 403 billion) and loans (Rs 128 billion) to sustain these state-owned enterprises and boost the economy.

However, the support accounts for more than 10% of federal budget revenue, highlighting the huge fiscal pressures.

The state-owned enterprise sector is subject to various risks, especially due to the large amount of working capital being locked up due to lagging in receivables and payables across the chain, resulting in circular debt of over Rs 4 trillion.

The low operational efficiency of the power industry continues to have a negative impact on the profitability of state-owned enterprises and has spread throughout the entire industrial chain.

The amount of guarantees provided was Rs 1,656 billion, while the outstanding debt amounted to Rs 3,545 billion, with the interest accrued on the NHA loan alone exceeding Rs 1,100 billion.

High debt and collateral levels pose significant risks to the industry, exposing it to both systemic and non-systemic risks.

Systemic risks including economic downturn, inflation, interest rate fluctuations, etc. have exacerbated the financial pressure on state-owned enterprises and made debt repayment more difficult.

State-owned enterprises contributed Rs466 billion in taxes to the state coffers, up 24%, while non-tax revenues, including sales tax, royalties and cesses, totalled Rs952 billion, up 58%. Dividends contributed Rs63 billion, up 43%.

Going forward, strengthening corporate governance is critical, with more independent, technically qualified directors needed to ensure effective governance and sound monitoring standards, and maintain a lean approach, the report states.