ISLAMABAD: Reducing losses and improving the financial viability of State-owned Enterprises (SoEs), a new World Bank report has suggested to the government to reduce or eliminate the longstanding practice of covering SoEs operating losses with transfers from the budget.

With the government’s direct financial support to the 14 largest loss-making SOEs at 0.8 per cent and support to all SoEs reaching 1.4pc of GDP in the fiscal year 2021, the government should subject all SoEs financing requests to a more stringent review process, including submission of independently audited financial statements and credible business plan to reduce losses.

Suggesting actions in the Public Expenditure Review 2023 focusing on ‘Reducing the Fiscal Impact of State-owned Enterprises’, the World Bank says tariff differential subsidy (TDS), that is, the difference between the tariffs that consumers face and the cost recovery tariff, should be revisited. The TDS is not an efficient instrument for reducing poverty as it is poorly targeted with most of the benefits accruing to the richer households. The government should instead consider alternative means of supporting the poor, such as disbursements through the Benazir Income Support Programme (BISP), which is much better targeted.

Other non-electricity subsidies to SoEs for ensuring food security and subsidising essential food items during Ramazan should be proportionate to the unit costs of providing the subsidised goods or services, with legally enforceable quantitative and qualitative indicators in SoEs’ performance contracts. The conditions for the provision of such subsidies should be defined in the subsidiary legislation under the SoE Law.

The enforcement of SoE loan agreements should be strengthened. Outstanding government domestic loans to SoEs stood at 3.5pc of GDP in FY21, of which nearly a third was overdue. Loss-making SoEs may lack the means and intention to repay government loans because there are no available funding streams or no direct consequences for not doing so.

Loan repayment should be added as a key performance indicator for the board of directors. This will achieve the dual objectives of encouraging internal financial discipline and limiting requests for new loans, the report suggests.

Published in Dawn, April 16th, 2023

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Trump 2.0
Updated 07 Nov, 2024

Trump 2.0

It remains to be seen how his promises to bring ‘peace’ to Middle East reconcile with his blatantly pro-Israel bias.
Fait accompli
07 Nov, 2024

Fait accompli

A SLEW of secretively conceived and hastily enacted legislation has achieved its intended result: the powers of the...
IPP contracts
07 Nov, 2024

IPP contracts

THE government expects the ongoing ‘negotiations’ with power producers aimed at revising the terms of sovereign...
Rushed legislation
Updated 06 Nov, 2024

Rushed legislation

For all its stress on "supremacy of parliament", the ruling coalition has wasted no opportunity to reiterate where its allegiances truly lie.
Jail reform policy
06 Nov, 2024

Jail reform policy

THE state is making a fresh attempt to improve conditions in Pakistan’s penitentiaries by developing a national...
BISP overhaul
06 Nov, 2024

BISP overhaul

IT has emerged that the spouses of over 28,500 Sindh government employees have been illicitly benefiting from BISP....