Pakistan Struggles with Public Sector Reforms Despite Loans from ADB

Pakistan’s government is facing challenges in reforming its public sector enterprises (PSEs), even with significant loans from the Asian Development Bank (ADB). The total debt of PSEs has risen to PKR 1.7 trillion, with an additional borrowing of Rs 43 billion in the fiscal year 2024.

The 2024-25 budget allocation for PSEs saw a dramatic increase, reaching PKR 1.267 trillion, which is a 104% rise from the previous year. This budget is mainly for subsidies and grants.

Despite receiving substantial funding from the ADB, including a USD 300 million Public Sector Enterprises Reform Programme (PSERP) initiated in 2016, meaningful reforms have been hard to achieve. Former Finance Minister Ishaq Dar had committed to improving PSE performance, especially in sectors like railways, Pakistan Steel, and Pakistan International Airlines (PIA). However, political sensitivity around privatising major PSEs has slowed progress.

The ADB’s support included a USD 300 million loan for sub-programme one in June 2016 and another USD 300 million for sub-programme two in 2017. These efforts aimed to enhance corporate governance and operational efficiency. However, many PSEs still rely heavily on government subsidies and credit guarantees, highlighting ongoing governance and accountability issues.

The failure to implement comprehensive reforms has continued the financial struggles of PSEs, affecting fiscal stability and broader economic development.