Washington DC February 7 2022: Pakistan’s SOE sector is saddled by poor performance and weak corporate governance, posing significant fiscal risks.
Non-financial commercial SOEs held total assets amounting to 44 percent of GDP in 2019 (up from 31 percent of GDP in 2015), but only provided about 0.7 percent of total formal employment. Based on a comprehensive triage report published by the Ministry of Finance in 2021, which provides a snapshot of the federal-level SOE landscape as of end-FY 2019, there are 213 SOEs, of which only 85 are commercial operations (18 financial and 67 non-financial).
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The overall revenues of all non-financial commercial SOEs in FY 2019 were about PRs 5 trillion (14 percent of GDP). Despite their important role in the economy, the financial performance of many SOEs is weak, with one-third consistently generating losses.
Weak governance and government effectiveness weigh on the business environment. Businesses remain discouraged from investing and expanding activities, mainly on account of an inefficient bureaucracy—especially excessive regulations and licensing requirements, obstacles to paying taxes in a cumbersome tax system, and difficulties trading across borders and registering property), which in turn increases corruption risks. As a result, private firm, and job creation as well as investment remain low, also relative to peers (as evidenced by Pakistan ranking among the lowest quarter in global competitiveness reports).
Pakistan remains a very closed economy compared to other emerging and developing economies, with openness quasi stagnating since the 1990s and net exports often acting as a drag on growth. Only a small number of firms export (primarily low value-added textile products) and fiscal revenues continue to rely on import tariffs, undermining trade integration and further weakening export competitiveness.
