Pakistan’s efforts to increase government control over state-owned enterprises (SOEs) have hit a setback after the International Monetary Fund rejected a proposal to shift key appointment powers from company boards to the federal government.
The proposal, put forward by the Government of Pakistan, sought to amend Section 18 of the State-Owned Enterprises Act to allow the executive to appoint chief executive officers of SOEs directly. Currently, this authority rests with the boards of these companies, which are responsible for hiring CEOs on performance-based contracts and ensuring accountability.
During ongoing negotiations under the Extended Fund Facility (EFF), the IMF declined to support the amendment, complicating Pakistan’s efforts to tighten oversight of loss-making public-sector entities and secure the next $1 billion loan tranche.
The government had argued that greater executive control was necessary, particularly in cases where boards resisted endorsing preferred candidates. However, the IMF maintained its position on strengthening corporate governance frameworks and limiting political or bureaucratic interference in SOE management.
The Fund also rejected a related proposal to appoint ex-officio board members from outside relevant ministries, which officials said could have significantly altered governance structures within public companies.
This marks the second recent attempt by the finance ministry to expand administrative control over key institutions. Earlier, lawmakers blocked a proposed amendment to the law governing the Export-Import Bank of Pakistan that would have effectively granted the finance division veto power over the appointment and removal of its president.
Meanwhile, the IMF has required Pakistan to reform laws governing at least 10 SOEs in line with existing frameworks, with the deadline extended to August 2026.
A recent performance review by the finance ministry highlighted persistent governance issues across the sector. Several major entities, including Sui Southern Gas Company Limited and state-owned power generation companies, continue to operate with interim leadership, while delays in permanent appointments have affected operational stability.
In some cases, overlapping roles have further complicated governance. At organizations such as the National Highway Authority, Port Qasim Authority, and Karachi Port Trust, chairpersons are also performing chief executive functions. Other entities, including Gwadar Port Authority and Pakistan Railways, have yet to appoint leadership from the private sector as envisioned under reform plans.
The report warned that prolonged ad-hoc arrangements have weakened decision-making and slowed restructuring efforts in critical sectors such as energy, transport, and infrastructure. It also noted concerns about the limited technical expertise and independence of some boards, despite oversight by the Cabinet Committee on SOEs led by Finance Minister Muhammad Aurangzeb.
Financial performance across SOEs has also deteriorated. Net losses surged by around 300% during the first full fiscal year of Prime Minister Shehbaz Sharif’s current administration, while total fiscal support reached approximately Rs. 2.1 trillion in FY2024–25, largely driven by equity injections to manage circular debt.
The IMF’s rejection underscores its continued emphasis on governance reforms and institutional independence as Pakistan navigates economic stabilization efforts under its bailout program.
