ISLAMABAD: The Ministry of Finance has instructed all state-owned enterprises (SOEs) to implement standard regulations and reporting manuals for their operational protocols, business plans, board appointments, and financial audits in order to minimize fiscal risks for the state by the deadline set by the International Monetary Fund.
On October 31, the IMF-mandated deadline, the ministry’s Central Monitoring Unit (CMU) issued directives directing all ministries and divisions to make sure state-owned enterprises under their jurisdiction adhere to the SOEs (Governance and Operations) Act 2023 and the SOEs Ownership and Management Policy 2023.
In accordance with these mandates, the CMU has provided federal SOEs with “Business Plan and Statement of Corporate Intent (SCI) Guidelines” that outline crucial procedures and elements of their business plans, strategic goals, conducting environmental analyses, and frameworks for efficient monitoring and assessment.
Another directive requires the SOEs to estimate and manage the financial requirements of satisfying PSOs in accordance with “Public Sector Obligations (PSOs) Costing Guidelines” and methodology, with a focus on activity-based, standard, and marginal costing approaches.
All state-owned businesses are instructed by the finance ministry to implement uniform rules and reporting guidelines.
To guarantee efficient governance, accountability, and transparency, all SOEs have been granted standard “Regulations on Audit Committee, Risk Management, and Internal Controls.” To reduce operational, financial, and compliance risks, the audit committees would have to put in place a strong risk management framework and keep up with sufficient internal controls.
Additionally, the CMU released “Directors Appointment and Evaluation Guidelines” for SOEs, which mandate that the divisions and ministries make sure that the board of directors is appointed, inducted, and evaluated in a transparent and efficient manner.
The government had committed in writing to the adoption of business plans by the 15 largest commercial SOEs by asset size and the publication of statements of corporate intent (SCI) by the end of October as part of the $7 billion Extended Fund Facility (EFF) that was approved by the IMF’s executive board in the final week of September. The IMF and Pakistani authorities are currently negotiating the dates for the first quarterly review of the Fund’s program, which is due in a few weeks.
The government had committed to publishing these four operational manuals by the end of October in order to offer guidance on the following topics: governance, including the appointment, selection, and performance reviews of SOE directors; how CMU will carry out its monitoring functions and reporting in accordance with the SOE Policy; and the implementation of the PSO framework.
Additionally, by the end of December, the government has committed to the adoption and publication by the 15 largest commercial SOEs by assets of externally audited financial statements and annual reports that comply with International Financial Reporting Standards (IFRS). By this date, it will also guarantee that, in accordance with Section 12(2) of the SOE Act, the boards of all commercial SOEs have a majority of independent directors.
In compliance with the SOE Act (Schedule II) and SOE Policy, further requirements include identifying, estimating, and contracting PSOs in the seven commercial SOEs with the greatest government claims. PSO agreements must be in place by the end of June 2025.
Boards of SOEs would have to set up audit committees with an independent member and other people with financial knowledge, but neither the CEO of the company nor the board chairman would be on the committee.
In the absence of the chief financial officer and chief internal auditor, these committees will meet with external auditors and analyze interim financial statements prior to board approval. Additionally, separate sessions with internal auditors are necessary.
In order for the CMU to fully fulfill its reporting obligations under Section 31 of the SOE Act by the end of June 2025, the government must finish developing an electronic database as part of the IMF program.
Therefore, in the December 2024 report, the Ministry of Finance will compare the performance of SOEs to the financial and non-financial benchmarks for FY24.
The Fund asserts that SOE reforms are essential to cutting losses, enhancing services, and limiting the government’s role.
According to the report, several SOEs generate significant losses and offer subpar services, consuming over 8% of GDP in direct budget assistance (accumulated since 2016).
In order to guarantee that SOEs that are owned by the wealth fund return to the governance structures outlined in the SOE Act, the IMF and the Ministry of Finance jointly signed a structural benchmark for revising the 2023 Sovereign Wealth Fund (SWF) Act by the end of December 2024.
The Sovereign Wealth Fund comprises enterprises valued at approximately $8 billion, including Oil and Gas Development Company Ltd, Government Holdings Pvt Ltd, Pakistan Petroleum Limited, National Bank of Pakistan, Mari Petroleum Co Ltd, Pakistan Development Fund Ltd, and Neelum-Jhelum Hydropower Ltd.
