State-owned units' net fiscal flow plunges 91%

ISLAMABAD:

The financial health of state-owned enterprises (SOEs) further deteriorated during the first half of the last fiscal year, as the government's support to these ailing firms jumped 31% to Rs804 billion in just six months, while their contributions to the state dropped 20%, revealed official statistics.

In yet another worrisome indicator, the net fiscal flow from these entities to the state sharply fell by 91% to a mere Rs35 billion during July-December 2025, down from Rs427 billion in the corresponding period, due to higher cash support and lower contributions.

These results were shared with the Cabinet Committee on State-Owned Enterprises (CCoSOEs) on Monday, chaired by Finance Minister Muhammad Aurangzeb.

However, the Ministry of Finance released figures only for the first half of fiscal year 2025-26 and did not provide comparative numbers for the corresponding period. The Express Tribune compared the officially released statistics with the publicly available report of the ministry.

Instead of taking steps to improve the worsening performance, the CCoSOEs approved a summary to amend the SOEs law aimed at changing the International Financial Reporting Standards (IFRS). The committee has now lowered, or in some cases approved exemptions from, these standards, which would camouflage the worsening fiscal risks, commented a Ministry of Finance official on condition of anonymity.

The finance ministry handout stated that the committee reviewed the bi-annual performance of federal SOEs for the first half of FY2025-26.

The ministry said the committee was informed that profitable SOEs generated aggregate profits of Rs423.3 billion during July-December 2025. However, compared to the previous year, there was a Rs33.7 billion, or 7.3%, reduction in profits under Prime Minister Shehbaz Sharif.

A finance ministry spokesperson said the profits declined due to lower oil prices in the first half of fiscal year 2026.

The statement added that aggregate losses of loss-making SOEs stood at Rs342.8 billion, with no reduction compared to the same period last year.

It further stated that government support to SOEs amounted to Rs804 billion. However, the comparative report showed that support in the first half of FY2024-25 was Rs616 billion, increasing by Rs188 billion, or 31%, within a year. This indicates that losses are rising but may not be fully booked.

The statement added that SOE contributions to the government stood at Rs839 billion, resulting in a positive net fiscal flow of Rs35 billion in favour of the government during the period.

However, last year's report showed that SOE contributions in the first half of FY2024-25 were Rs1.043 trillion, decreasing by Rs204 billion, or 20%, within a year.

As a result, the net fiscal flow to the government during July-December 2025 dropped by a staggering Rs392 billion, or 91%, compared to the corresponding period.

The poor results show that the government has failed to bring improvement in the fiscal affairs of SOEs. This also reflects poorly on the performance of the cabinet committee, which was tasked in 2024 to close or privatise such entities. So far, the government has only privatised Pakistan International Airlines.

The finance ministry said the committee identified areas requiring sustained attention, including circular debt and other fiscal risks, operational weaknesses in parts of the power and infrastructure sectors, corporate governance gaps, and the need for stronger board effectiveness and accountability.

The committee emphasised continued implementation of approved business plans, measurable performance targets, improved operational efficiency, and timely corrective action in underperforming entities.

The ministry added that the committee also considered a summary submitted by the Finance Division regarding amendments to the SOEs Policy, 2023, for the monitoring mechanism of IFRS implementation by SOEs.

"The committee approved the proposed amendment to provide that IFRS applicable to SOEs shall mean the Financial Reporting Standards notified by SECP, including any modifications or exemptions granted by SECP to companies in general. The amendment also provides that, in the case of SOEs regulated by the State Bank of Pakistan, the statutory financial reporting framework prescribed by SBP shall prevail," according to the ministry.

A special committee had proposed granting exemptions to energy sector firms by relaxing the SOEs Act, 2023 and SOEs policy. The law, introduced three years ago to bring reforms, provided a three-year transition period that lapsed in February this year.

However, the Central Monitoring Unit (CMU) of the finance ministry opposed the exemption, arguing it would compromise transparency and hide fiscal risks on the balance sheets of these enterprises.

Exemptions from IFRS 9 and 14 are neither appropriate nor consistent with the reform direction under the SOEs Act, 2023, according to the CMU's report. The CMU said proper application of IFRS 14 and related regulatory accounting principles is critical, as deferral account balances, tariff differentials and recoverable amounts must be transparently identified.