Home-grown problems, solutions

The nation is stuck in the dilemma of a perpetual struggle to borrow money to sustain the fragile fiscal structure of the country and attempt to roll out meaningful structural reforms. The addiction to borrowing money far exceeds the determination to reform.

This makes the job of the Finance Minister of Pakistan the most difficult task in the country - who has to make money coming in from the lenders with no end in sight as to how to put a stop to it.

“We have lost our credibility as a country,” Finance Minister Muhammad Aurangzeb stated, warning that urgent economic reforms are necessary to restore trust.

The statement of the minister will have consequences and a reflection of a grim reality that the job of implementation of reforms lacks sincerity. The recent visit by an IMF team examining the country’s governance structure, processes and systems demonstrates a credibility gap.

Speaking at a Senate climate change committee meeting, the finance minister briefed lawmakers on the country’s climate financing challenges and its negotiations with international lenders.

He underlined that the Asian Development Bank (ADB) had committed US$500 million, while Pakistan expects to secure $1 billion from the International Monetary Fund (IMF) next week and that the government is also working on issuing Green Panda Bond to attract further investment.“

The Finance Minister also announced a major shift in tax policy, stating that the finance ministry will now oversee tax policy, while the Federal Board of Revenue (FBR) will focus solely on tax collection.

In a startling disclosure, the Ministry of Finance (MoF) this week reported that the aggregate losses of the state-owned enterprises (SOEs) stood at Rs 851 billion during 2023-24 and their total loans at Rs9.2 trillion, almost equal to FBR revenues, posing serious financial and credit risks.

The SOEs in the power sector cumulatively remain at the top of the list, bleeding the public money and economy, although the National Highway Authority (NHA) reported the largest single loss at Rs295.5bn. These entities together eroded almost Rs2.5trn of the economic value of the country.

While their total revenues increased by 5.26 percent to Rs13.5trn in FY24, the total net losses increased by almost 89 percent or Rs30.65bn, although their aggregate losses were reduced by 14 percent by the government through subsidies and grants, etc.

There are also some profit-making SOEs; noteworthy is OGDCL, which stood on top of the profit-making firms with Rs208bn profit followed by Pakistan Petroleum Ltd at Rs115.4bn and National Power Parks at Rs76.8 and PSO at Rs19.6bn. In the good years, the companies in the corporate sector and under corporate governance like OGDCL, PSO, Pakistan Petroleum Ltd, Sui Southern and Northern Gas companies traded as blue chips on the stock market of the country.

The Central Monitoring Unit (CMU) has been created in the ministry of finance under the requirements of the IMF programme to keep track of performance of all SOEs and their impact on budget to facilitate the government in phasing them out to the private sector or to close them down.

The (CMU) in its report is reported to have deplored disproportionate presence of non-professional and non-independent members on the boards of directors at state-owned entities (SOEs) and an absence of effective audit and monitoring mechanisms in these organisations.

The CMU has suggested adoption of international financial and audit standards to address governance weaknesses and financial losses to the nation.

“Unfortunately, many SOEs still have a disproportionate number of non-independent directors, particularly in critical sectors such as power, infrastructure, and gas,” said the CMU in its analysis of the performance of SOEs.

It pointed out that this imbalance was resulting in the dominance of insider perspectives where the management’s influence remains unchecked and critical decisions favour short-term or specific stakeholder groups over the SOEs’ long-term viability because of reduced accountability.

The fiscal and economic issues confronting the nation are home-grown and self-inflicted ones. The solution also has to be a home-grown answer. The starting point is good governance, overriding political expediency, corrupt practices and incompetence.

Many countries, with age and challenges like Pakistan, have done it and eventually set their house in order. They are now recognised as among the fastest growing economies of the world.

Indonesia is one such peer that underwent many years of political turmoil, dictatorial regimes and massive governance issue, but eventually, its political leadership recognised the importance of prosperity for the people and with the determination of its masses set their house in order.

Today, Indonesia is part of the G20 club and recognised among the best twenty growing and well-managed economies of the world. Indonesia has been widely tipped to reach the status of Group of Seven rich democracies in due course as the country has been attracting foreign investors with its growing middle class, young demographics, and abundant resources.

Pakistan too has the human skills, brain power and resources to be part of the front-ranking economies of the world. The nation simply has to put its act together.

Copyright Business Recorder, 2025