IMF blocks move to control SOE chiefs

The International Monetary Fund (IMF) did not accept a request to empower the government to appoint heads of the state-owned entities (SOEs) by withdrawing this authority from their boards, blocking a move that could have again strengthened the grip of the executive on these companies.

The global lender also did not agree to another suggestion that the ex-officio members of the SOEs should be appointed from outside the relevant ministries, according to officials privy to the discussions held recently. Government sources told The Express Tribune that the proposals were made during the recent inconclusive talks for the $1 billion loan tranche of the Extended Fund Facility (EFF). They said that the issue about the appointment of the chief executive officers (CEOs) had also been raised during the second review talks, but the IMF did not agree.

The Pakistani authorities requested the IMF to allow it to amend Section 18 of the SOEs Act of 2023, which empowers the boards of these SOEs to appoint CEOs or the president of the companies.

The finance ministry spokesperson did not reply to a request for comments. According to the law, the board in the case of a company, or the concerned authority in the case of a statutory SOE, shall appoint the CEO to the SOE under a performance-based contract for a specified period. The board is also empowered to set performance benchmarks of the SOEs and to ensure the accountability of the heads of these entities.

However, the government wants these powers back in its own hands, as some of the boards did not accept its nominees for the appointment of CEOs, the sources added. The directors on the boards are appointed by the government, after being duly vetted by the Cabinet Committee on the SOEs. But the government now seems not to trust its appointed directors to make the right decision.

This is the second time in less than a month that a covert or overt attempt has been made to regain the authority to appoint the CEOs has failed. In February, the finance ministry had also proposed amendments to the Exim Bank law. According to the proposed amendment, the Exim Bank president would be appointed by the board with a three-fourths majority, including a mandatory vote from the ex-officio board member representing the Ministry of Finance, the secretary said.

But the proposal that the board could not hire or fire a president without the finance division’s vote sparked debate over bureaucratic control. Legislators had objected to giving veto power to the finance division representative on these boards, and the National Assembly Standing Committee rejected the proposal and asked the government to review the amendment granting veto power to the finance ministry.

To break bureaucratic and government monopolies, the IMF has imposed a condition to amend the laws governing 10 SOEs, in consultation with the Fund, to align them with the SOE Act. The revised deadline for these amendments, including the Exim Bank law, is August 2026. A recent performance report of the SOEs, available on the website of the finance ministry, also underscores how badly these companies are affected because of compromised appointments.

“The appointment of a competent and professionally qualified Chief Executive Officer is essential for the smooth functioning of an enterprise. SOE boards must adhere to merit-based, transparent selection processes that prioritise competence and integrity, as provided under the SOE Act,” reads the report. The report further added that boards should also establish and approve a succession planning policy to ensure continuity in leadership and minimise operational disruption in the event of a vacancy.

It said that the continued practice of ad-hoc or interim CEO appointments, often lasting several years, represents one of the most serious remaining governance failures, particularly in the power, infrastructure and transport sectors.

The finance ministry report, which is based on the last fiscal year, said that frequent reliance on acting CEOs in major entities such as SSGCL and GENCOs has led to operational instability and weakened managerial authority. In several cases, delays in appointments, often caused by prolonged administrative processes and ministerial approvals, have slowed down the implementation of key reforms, stated the report. The report said that delays in appointments contribute to operational instability and inconsistent management control. GENCOs also frequently face similar leadership gaps, resulting in inconsistent operational oversight and stalled reform initiatives.

In some entities, such as the National Highway Authority, Port Qasim Authority, and Karachi Port Trust, the chairman is performing CEO functions, while in Gwadar Port Authority and Pakistan Railways, the chairpersons are not from the private sector. Succession planning frameworks are largely absent, resulting in leadership gaps that affect operational stability, strategic decision-making, and the implementation of long-term reforms. The finance ministry further said that many boards are constituted without the technical depth needed for commercial oversight — directors lack sector expertise, risk awareness, or independence. However, the directors are appointed by the Cabinet Committee on SOEs, which is headed by Finance Minister Muhammad Aurangzeb. The board nomination committee makes recommendations about the directors to the cabinet committee.

The financial health of SOEs further deteriorated in the first full fiscal year of the government of Prime Minister Shehbaz Sharif, as their net losses increased by 300%. The government said it provided Rs2.1 trillion in fiscal support to these SOEs during FY2024-25, driven mainly by higher equity injections to clear the circular debt stock, while subsidies showed a modest decline.