SOE debt explodes to Rs10.1 trillion

Pakistan’s state-owned enterprises (SOEs) accumulated debt of around Rs10.1 trillion by the end of December 2025, highlighting growing financial pressure on the government and raising concerns over the effectiveness of ongoing reforms.

A Finance Ministry monitoring report showed that SOE debt increased by Rs1.3 trillion, or 14.3%, in one year. The figure was also substantially higher than the Rs2.95 trillion in SOE debt and liabilities reported by the State Bank of Pakistan for the same period.

The report found that loss-making state companies were incurring an average loss of Rs2.8 billion for every working day, equivalent to about Rs730 billion annually. Government financial support through subsidies, grants, loans and equity injections averaged Rs6.6 billion per day, or roughly Rs1.7 trillion annually.

Combined, the losses and government support represent an annual financial burden of about Rs2.5 trillion.

The report said SOEs had Rs2.6 trillion in foreign-currency liabilities, exposing the government to risks from exchange-rate movements, refinancing pressures and external economic volatility. Government cash development loans to SOEs stood at Rs2.1 trillion, while commercial banks had extended another Rs3.1 trillion in financing.

Unfunded pension liabilities were also estimated at around Rs2 trillion, adding to the government’s potential future obligations.

The country’s circular debt stock also remained a major concern. Combined circular debt reached about Rs3.3 trillion during the period despite restructuring measures and arrangements aimed at managing outstanding power-sector liabilities.

The Finance Ministry warned that financial restructuring and debt rescheduling alone would not resolve the problem. It called for deeper reforms in electricity generation, transmission and distribution, tariff structures, governance, theft prevention and revenue collection.

Power distribution companies remained among the biggest sources of financial losses. Technical losses above regulatory benchmarks and weak recoveries contributed significantly to the buildup of circular debt.

The report said inefficiencies within distribution companies added around Rs112 billion to circular debt, while under-recoveries contributed another Rs31 billion during the six-month period.

Equity injections into SOEs rose sharply to Rs225 billion during the first half of the fiscal year, with much of the money directed toward settling power-sector obligations, including payments to independent power producers. Despite these interventions, circular debt continued to increase.

The ministry also warned that expected accounting provisions in the oil and gas sector could create an additional financial shock of up to Rs500 billion, potentially affecting profits, government dividends and market valuations.

The report described the SOE sector as a growing fiscal vulnerability, with a small group of profitable companies supporting a much larger number of loss-making entities.

It recommended greater transparency in government support and the introduction of clearly costed public service obligations to prevent unpaid subsidies and other liabilities from accumulating outside official accounts.