Pakistan's State-Owned Enterprises' Accumulated Losses Hit Rs7.22 Trillion, Sovereign Budget Under Strain

The accumulated losses of Pakistan's state-owned enterprises (SOEs) have risen 22 percent in a year to Rs7.22 trillion. According to the bi-annual report published by the Central Monitoring Unit (CMU) of the Federal Finance Division, aggregate losses for the six months from July to December 2026 stood at Rs342.8 billion, almost equal to the Rs342.9 billion of the same period a year earlier. At first glance the figure may suggest stability; but the flow is only as steady as it is worrying—the stock of liabilities (accumulated losses, interest and quasi-fiscal obligations) is compounding every period. Government support rose 31 percent in the six months to Rs804 billion, from Rs616 billion a year earlier. The sharpest increase came in equity injections—Rs224.6 billion, a 190 percent jump. Government loans rose to Rs164.8 billion, a 79 percent increase. Subsidies were broadly stable at Rs332.2 billion, while grants fell 27 percent to Rs82.3 billion. The most striking figure in the report is that the gap between what the government receives from SOEs and the support it gives them—the net fiscal flow—has fallen from Rs427 billion to just Rs35.8 billion, a contraction of about 92 percent. The Fiscal Efficiency Index dropped from 1.64x to 1.04x. The 1.00x mark is the breakeven line; it now means every rupee invested returns just one rupee. Another reading of the index: of Pakistan's FY2025 federal tax revenue of Rs7,065 billion, Rs804 billion went back to the SOE sector—one rupee in every nine. The profit side is also weakening. Aggregate profits of profit-making entities fell 7 percent to Rs423.3 billion, while net adjusted profit fell 30 percent to Rs80.5 billion. SOE contributions to the federal government fell 19 percent to Rs839 billion. In other words, even the previously profitable entities are weakening and the cross-subsidy cushion is narrowing. The debt picture is heavier still. Total SOE debt excluding guarantees rose 14 percent to Rs10.1 trillion; accrued interest rose 9 percent to Rs2.18 trillion; unfunded pension liabilities rose 11 percent to Rs1.98 trillion. Yet total equity fell 3 percent to Rs6.41 trillion. Debt composition includes foreign re-lent loans of Rs2.58 trillion, bank borrowings of Rs3.10 trillion and cash development loans of Rs2.10 trillion. Circular debt is now the biggest burden. On IFRS accounting, power and gas sector circular debt is Rs3.38 trillion; on a gross basis it is about Rs4.9 trillion. This includes Rs1.1 trillion payable to IPPs and GENCOs, Rs694 billion drawn from circular-debt restructuring, Rs2.0 trillion of gas-sector payables, and Rs1.1 trillion in Late Payment Surcharge. Here lies the biggest contradiction. Equity injections were nearly tripled to clear circular debt; yet in the same six months circular debt rose Rs143 billion. In other words, pouring in cash did not net-reduce the problem. This shows the weakness is not liquidity but operational and technical inefficiency. The Operating Cost Recovery Ratio (OCRR) captures this reality. Loss-making entities recover only Rs84 for every Rs100 spent, or 0.84. Operating revenue cannot even cover operating cost—a structural, not cyclical, deficit. The ratio for profit-makers also fell from 1.11 to 1.10. Portfolio returns are also extremely weak—return on equity is just 1.25 percent, asset turnover 32 percent, and leverage above 6x. This is a value-destructive, shock-prone capital structure. The concentration of losses is confined to a few entities. The National Highway Authority (NHA) is the single largest loss-maker—Rs124.7 billion in the six months, with accumulated losses of Rs2.17 trillion. Then come Pakistan International Airlines (PIA) Holding Company, Pakistan Railways and the power distribution companies (DISCOs). A handful of names is dragging down the whole picture. At Pakistan Railways, pension liabilities are partially unrecognised and lie outside about Rs60 billion a year in operational grants. As a result, the Rs1.98 trillion unfunded pension liability shown in the report may understate the true sovereign risk. The DISCOs' technical losses exceed NEPRA's benchmarks. Overall, the CMU itself has warned that if the trend continues, the SOE sector could turn from a marginal contributor into a net fiscal consumer. This is not outside criticism; it is a warning from the government's own monitoring unit—which gives it greater durability. This is where analytical perspective is needed. The phrase 'approaching breakeven' is technically true, but it describes the stability of the flow while masking the accelerating growth of the stock of liabilities. If the index, now at 1.04, falls below 1.00, the sector will definitively become a net fiscal consumer. The risks are already realised, not prospective—a 22 percent rise in accumulated losses, a 92 percent collapse in net fiscal flow, a 190 percent rise in equity injections while circular debt still rose, a negative equity trend, and a warning from the government's own monitor. Overall risk is therefore high. Quasi-fiscal liabilities are the real hidden risk—unfunded pensions, circular debt and quasi-fiscal obligations sit partly outside the primary deficit, so the reported fiscal position understates the true stress. There is, however, a positive side—the CMU's bi-annual report discloses specific metrics such as OCRR, ROE, leverage and the Fiscal Efficiency Index. This is a prerequisite for transparency and future reform. Within contributions, dividends rose 26 percent and tax 10 percent, even as total contributions fell. Looking ahead, the clearest early signal is the direction of the OCRR. It improved marginally from 0.83 to 0.84; only if this single metric durably moves upward in the next report and circular debt falls on a net basis will a structural turn become visible. Otherwise, over the next one or two quarters, this steady picture will shift further downward.