PIA, SOEs and the cost of delayed reform

Pakistan's state-owned enterprises (SOEs) continue to suffer from weak financial management, poor corporate governance, overstaffing and deep political interference, all of which have undermined their operational efficiency and commercial viability over time. Despite repeated reform attempts and privatisation agendas initiated by successive governments, progress has remained slow and inconsistent due to structural bottlenecks, lack of political commitment and the absence of a strong legal and regulatory framework.

SOEs operate across eight major sectors of the economy, manage vast public assets and liabilities, and play a dual role by contributing to government revenues while simultaneously imposing a heavy fiscal burden through subsidies, grants, loans, guarantees and equity injections. As per the finance ministry, in FY24, federal SOEs generated gross revenues of over Rs13.5 trillion, with aggregate profits of Rs820 billion; however, loss-making entities recorded losses of Rs851 billion. While total assets increased to Rs38.4 trillion and equity showed modest growth, liabilities continued to rise, reflecting underlying financial fragility.

SOEs contributed significantly to the national exchequer through taxes, non-tax revenues and dividends, yet tax contributions declined compared to the previous year, reinforcing concerns about sustainability. Sector-wise analysis reveals that oil, gas and power dominate revenues, while profitability is concentrated mainly in oil and financial sectors; in contrast, power, transport, infrastructure and manufacturing-related SOEs remain major loss-makers.

Loss-making entities such as NHA, DISCOs, PIA, Pakistan Railways and Pakistan Steel Mills have accumulated losses reaching Rs5.7 trillion since 2014. To sustain these entities, the government extended fiscal support of Rs1.6 trillion in FY24, alongside substantial guarantees and loans, which further strain public finances as per finance ministry's FY24 SOE report.

Recently, PIA's privatisation would have significant macroeconomic, fiscal and sectoral effects on the economy. In the short term, a successful privatisation might relieve pressure on the federal budget by removing the need for government guarantees, bailouts and subsidies that have traditionally been given to PIA. From an efficiency perspective, privatisation has the potential to improve operational performance through better management practices, stronger incentives and greater accountability. PIA has imposed a constant fiscal drain, taking public funds away from investments, social protection and development. Therefore, shifting ownership or management to the private sector, especially through a transparent process, may enhance budgetary restraint and support in containing the dynamics of public debt.

However, the economic impact of PIA's privatisation would hinge fundamentally on the proper implementation of reforms and the strength of the regulatory framework in place. Without prior restructuring, including balance sheet clean-up, and resolution of legacy debt, privatisation risks transferring public inefficiencies into a private monopoly or resulting in failed bids and continued fiscal exposure

The history of previous privatisations in Pakistan indicates that due to the absence of robust regulation, competition policy and governance reforms, privatisation by itself does not ensure fiscal or efficiency improvements. The long-term economic impact of PIA's privatisation is likely to be favourable. However, success depends on a strong regulatory framework that guarantees fair competition, consumer protection and service obligations. This will lower fiscal risks, improve service quality and increase the aviation sector's contribution to growth. On the other hand, poorly planned privatisation programmes may result in market distortions, prolong subsidies and erode public confidence.

To restore efficiency, fiscal sustainability and economic credibility, PIA's privatisation should be seen as a component of a larger SOE reform strategy rather than as a stand-alone transaction.