Islamabad – The International Monetary Fund (IMF) has blocked a Pakistani government request to regain direct control over the appointment of heads of state-owned entities (SOEs). This decision prevents a move that would have shifted authority away from the SOE boards and back to the executive branch.
IMF Concerns Over SOE Governance
The IMF also rejected a related proposal concerning the appointment of ex-officio members of SOEs, suggesting they not be drawn from within relevant ministries. These discussions occurred during recent talks regarding a $1 billion loan tranche from the Extended Fund Facility (EFF), which ultimately proved inconclusive.
Pakistani authorities had sought to amend Section 18 of the SOEs Act of 2023, which currently empowers SOE boards to appoint their own CEOs or presidents. The finance ministry did not respond to a request for comment.
According to government sources, the impetus for regaining control stems from instances where SOE boards declined to accept the government’s preferred CEO nominees. While the directors on these boards are appointed by the government and vetted by the Cabinet Committee on SOEs, the government now appears to lack confidence in their decision-making.
Previous Attempts to Regain Control
This marks the second failed attempt within a month to centralize control over SOE leadership. In February, a similar proposal to amend the Exim Bank law was rejected after legislators objected to granting veto power over board decisions to the finance division.
The IMF has stipulated amendments to the laws governing 10 SOEs, in consultation with the Fund, to align with the SOE Act, as a condition for financial assistance. A recent finance ministry report highlights the negative impact of compromised appointments on SOE performance.
The report emphasizes the importance of “competent and professionally qualified” CEOs selected through “merit-based, transparent selection processes.” It also criticizes the prevalence of ad-hoc or interim CEO appointments, particularly in the power, infrastructure, and transport sectors.
The report details operational instability and stalled reforms resulting from frequent reliance on acting CEOs in entities like SSGCL and GENCOs. It also notes instances where chairpersons are performing CEO functions, or lack private sector experience, as in the cases of the National Highway Authority, Port Qasim Authority, Karachi Port Trust, Gwadar Port Authority, and Pakistan Railways.
The financial health of SOEs has deteriorated, with net losses increasing by 300% during the first full fiscal year of the current government. The government provided Rs2.1 trillion in fiscal support to these entities during FY2024-25.
Frequently Asked Questions
What is the IMF’s position on SOE leadership appointments?
The IMF does not support empowering the government to directly appoint heads of SOEs, preferring that this authority remain with the SOE boards, as outlined in the SOEs Act of 2023.
Why is the government seeking to change the SOE Act?
The government wants to regain control over CEO appointments because, according to sources, some boards have not accepted its nominees for these positions.
What are the consequences of delayed or interim CEO appointments?
The finance ministry report states that frequent reliance on acting CEOs leads to operational instability, weakened managerial authority, and slowed implementation of key reforms.
As the government and the IMF continue negotiations, it remains to be seen whether a compromise can be reached regarding SOE governance. A possible next step could involve further discussions on strengthening board independence and ensuring merit-based selection processes, while respecting the existing legal framework.
