Many SOEs have fallen in financial red zone

ISLAMABAD: Several State-Owned Enterprises (SOEs) in the country have fallen into the financial “red zone,” raising serious concerns of potential bankruptcy, according to an alarming review issued by the Ministry of Finance.

The assessment reveals that several SOEs are operating under severe financial distress, where bankruptcy is not just a possibility but a likely outcome if urgent reforms are not undertaken.

The ministry’s report calls for immediate strengthening of internal controls, governance frameworks, and enterprise-wide risk management systems within these entities.

The absence of effective oversight in many SOEs has led to financial misreporting, rising operational costs and suspected fraudulent activities. The ministry’s internal review notes that the average-score—a key indicator of financial stability—for these enterprises is a dismal far below the safe threshold, indicating a high probability of financial collapse.

“Many of these institutions are not just financially vulnerable; they are structurally broken,” the report warns.

Despite the enforcement of the State-Owned Enterprises Act, 2023, many boards of directors remain inactive or dysfunctional. The report criticises these boards for lacking independence, relevant expertise and the commitment to enforce strategic decisions or accountability.

The report also highlights widespread governance failures. In several SOEs, audit committees are either inactive or purely symbolic, with no technical capacity to challenge decisions or oversee financial transparency. Risk management frameworks, where they exist at all, are either perfunctory or disconnected from real-time operational and financial decision-making.

The lack of internal monitoring and timely corrective actions has allowed weak financial practices to persist unchecked. These deficiencies have exacerbated financial instability and further eroded public trust in these state-owned bodies.

The situation is particularly dire in the energy and commercial sectors, where complex supply chains, high cash flows, and weak oversight have created an environment ripe for manipulation and potential fraud.

The ministry’s findings serve as a wake-up call to policymakers and regulators, who are being urged to revamp the governance structures of SOEs before the current financial stress turns into systemic institutional failure.