Rs75 Trillion ‘Black Hole’: SOEs and Pensions Outpace Pakistan’s Development, Defence Spending

Islamabad – June 22, 2025: A staggering Rs75 trillion fiscal burden created by state-owned enterprises (SOEs) and pension liabilities is threatening Pakistan’s economic stability, according to new data released in the government’s fiscal report. This hidden financial black hole has now overtaken combined allocations for development projects and even defence spending, sparking serious concerns about fiscal sustainability.

Economic experts and policy watchdogs warn that unless structural reforms are urgently implemented, Pakistan’s long-term debt and budget priorities will remain hostage to non-productive liabilities.

Key Highlights of the Report

Rs2.2 trillion in annual losses from inefficient SOEs
Rs839 billion allocated for civil and military pensions in FY25
Combined burden surpasses funding for PSDP (Public Sector Development Programme) and defence
Fiscal risks continue to rise due to lack of privatization, poor governance, and legacy liabilities

“We are spending more to keep failing enterprises and pension systems afloat than we are on building Pakistan’s future,” noted a senior official in the Ministry of Finance.

State-Owned Enterprises: Chronic Loss-Makers

SOEs continue to drain the national exchequer, particularly in sectors such as:

Power and energy (e.g., distribution companies, PIA)
Railways and transport
Steel, manufacturing, and utility sectors

Despite repeated government promises to privatize or restructure these loss-making institutions, political resistance, legal delays, and unions’ pushback have stalled reform efforts.

A report by the Finance Division reveals that some SOEs haven’t submitted audited accounts in years, making financial tracking and accountability nearly impossible.

Pension Explosion: Unsustainable Growth

Pensions, particularly military and civil service pensions, have ballooned in recent years:

Projected to rise to Rs1.2 trillion annually within five years
Mostly unfunded, creating intergenerational debt burdens
No pension reform legislation passed despite multiple budget cycles

Experts suggest Pakistan needs to transition to a contributory pension model, especially for new hires, to reduce the pressure on future budgets.

Development Suffers as Liabilities Rise

The Public Sector Development Programme, critical for infrastructure, health, education, and water projects, is being squeezed. In FY25, PSDP allocations were cut by 15%, while pension and SOE-related payments continued to grow.

“We’re borrowing to pay pensions, not to build roads or invest in youth,” remarked economist Dr. Hafeez Pasha.

What Needs to Be Done?

Policy experts propose:

Immediate privatization or performance-based restructuring of failing SOEs
Establishment of a Sovereign Wealth Fund to absorb liabilities gradually
Comprehensive pension reforms, including actuarial assessments and caps
Independent oversight and publication of SOE financials

International lenders like the IMF and World Bank have repeatedly advised Pakistan to reduce its non-developmental expenditure to stabilize debt-to-GDP ratios.