Strengthening State-Owned Enterprises through Improved Governance, Business Restructuring

State-owned enterprises (SOEs) play a critical role in Pakistan’s economy by providing essential services—such as electricity, transport, water, and national infrastructure—while supporting key strategic sectors. Their performance directly affects economic growth, public finances, and the quality of services that citizens rely on every day.

However, SOEs face persistent governance and financial challenges. As of the financial year (FY) 2024, the government’s SOE portfolio was comprised of 117 entities with combined assets of $135.4 billion. Commercial SOEs account for 99% of total assets and revenues and have been responsible for all net losses since FY2016. These losses are heavily concentrated in a small group of seven SOEs, including the National Highway Authority, which alone recorded losses equivalent to 0.28% of gross domestic product in FY2024.

Previous SOE reform efforts, which began in the 1980s, saw minimal progress. Though the liberalization of the banking and telecommunications sectors was a step in the right direction, broad SOE reform was constrained by

• government’s limited ownership of reforms;
• weak coordination across ministries and with development partners that created ineffective sector-specific approaches; and
• strong resistance from stakeholders, including the public, mainly due to a lack of understanding of the reform’s benefits.

An ADB diagnostic assessment of these SOEs completed in 2020 identified the following main causes of underperformance:

• absence of an overarching SOE reform policy and supporting law;
• limited transparency as evident in the lack of published annual reports, financial reports, and weak business plans;
• corporate governance issues, including boards dominated by ex officio members; and
• weakened oversight due to a decentralized ownership monitoring structure that created conflicts of interest as multiple ministries acted as policymakers, regulators, and owners.

The diagnostic recommended the adoption of a comprehensive SOE policy and law that contains principles covering the state’s role as shareholder; governance, transparency and accountability; effective SOE monitoring and reporting; and public service obligation framework consistent with commercial SOEs’ profit mandate.

Following the results of the diagnostic assessment and in line with government's structural reform agenda, ADB is funding a two-phased approach to improving the financial and structural outlook of SOEs in Pakistan. The first phase focused on supporting the development of the SOE Governance and Operations Act, 2023 and the SOE Ownership and Management Policy, 2023. The second phase is centered on supporting implementation of this law and policy framework, using a reform scaffolding that highlights six key drivers of improved SOE performance.

1. Clarify SOE mandates so they are required to achieve sustainable financial returns.
2. Separate the government’s role as regulator and sector policy setter from its ownership responsibilities.
3. Promote effective governance by ensuring board independence and appointing competent board members.
4. Prepare every SOEs’ business plans and audited financial statements on time and have these published to strengthen transparency and accountability.
5. Maintain properly costed out and funded public service obligations (PSOs).
6. Track SOE performance through a specialist SOE ownership monitor.

For the first time in Pakistan, a results-based approach will be used for SOE reform. The program uses a blend of policy measures, training incentives, investment incentives, and monitoring support to accelerate the transformation of 40 SOEs, including the National Highway Authority (NHA), into commercially viable entities by promoting compliance with the Act and Policy. In particular, it supports the NHA as a pilot to show how transformation can be achieved through stronger corporate policies, capacity building, and carefully designed business restructuring that enhance infrastructure and climate investments. This approach can inspire similar reforms across the SOE portfolio in Pakistan and in other developing member countries.

Implementation support

A centralized monitoring and reporting unit, called the Central Monitoring Unit (CMU), has been established to improve oversight, publish aggregate financial and non-financial performance reports and provide regular reports to the Cabinet Committee on SOEs that is Chaired by the Minister for Finance. Guidelines and manuals have been developed to aid in implementing the law and policy. Support is being provided to the CMU to develop an electronic SOE database, institutionalize performance reporting, and to monitor compliance with the law and policy.

Director training programs have been developed and are now offered by multiple certified institutions, which will help expand the pool of potential directors. ADB and the Ministry of Finance have carried out several training programs for line ministries, SOE Boards, and SOEs on the content and implementation of the Act and Policy. Public awareness has increased, generating more focused political debate but also showcasing the steady progress the government is making to improve SOE governance and commercial performance. A communication strategy is in place to engage stakeholders, inform discussion and debate, and address misconceptions. Institutional alignment with the SOE Act and Policy is also progressing.

Alongside these reforms, the government is also pursuing wider structural reforms to further reduce fiscal pressures and increase private sector participation. Central to this agenda is the privatization of large, loss-making enterprises. Recent developments include the privatization of Pakistan International Airlines, in which a controlling stake has been awarded to a domestic consortium through a competitive process, with management control to follow completion of regulatory requirements. The government has also proceeded with the privatization of the First Women Bank Limited through a government-to-government transaction with an investor based in the United Arab Emirates.

In parallel, the government is scaling-up the use of public–private partnerships (PPPs) to deliver infrastructure and services while strengthening fiscal risk management. Updated PPP frameworks are being applied across various priority sectors, supported by clearer project screening, improved disclosure, and enhanced monitoring of contingent liabilities. Together, the privatization agenda and PPP reforms complement SOE governance improvements by aligning enterprise‑level efficiency gains with broader changes in ownership, private participation, and accountability across the public sector.

Results-based financing

The next step in implementation is ADB’s results-based lending program to enhance the efficiency, financial sustainability and performance of the 40 commercial SOEs by 2030, while also providing reform precedents and examples that the wider SOE portfolio in Pakistan and across the region can adopt. The program supports improved financial performance through operating cost recovery ratio targets, full implementation of the SOE Act and Policy, strengthened governance, business and investment planning, statements of corporate intent, which summarize the main points of the business plans, and PSO arrangements. It also requires full adoption of international financial reporting standards, climate and gender actions to improve financial performance and resilience, and supports the targeted transformation of the NHA.

The program offers several practical lessons that can inform similar SOE reform efforts.

• Understand the political and institutional context, set goals that are realistic for that environment, and sequence reforms in a way that allows steady progress. Setting realistic goals and sequencing reforms carefully help manage resistance, build credibility, and sustain momentum over time.
• Begin with a solid analytical diagnosis and ensure that proposed solutions are practical and clearly laid out. Well-defined diagnostics ensure that reform measures are targeted, practical, and aligned with actual problems rather than assumptions.
• Move at a pace the counterpart can manage, structuring the reform process so they stay engaged and do not fall behind. A phased approach helps maintain engagement, informs prioritization and sequencing, avoids reform fatigue, and allows institutions to absorb and institutionalize new practices.
• Maintain the role of a trusted advisor by working closely with government counterparts through regular collaboration, field missions, dedicated technical assistance, workshops, and consistent follow-up. This relationship enables timely course correction and helps translate policy commitments into practical action.
• Engage in thorough consultation and ensure that key actors are part of the process from the start. Involving key actors from the start improves design and increases the likelihood of successful implementation.
• Coordinate closely with other development partners to maintain alignment and avoid mixed messages and signals. This reduces duplication and transaction costs, avoids conflicting advice, and strengthens the overall impact of reform support.
• Use incentives to support progress, rewarding timely achievement of milestones and addressing delays when key commitments are not met. Incentives help reinforce accountability while providing flexibility to address delays and emerging challenges.

Asian Development Bank. Pakistan: State-Owned Enterprise Corporate Governance and Performance.