In the first 10 months of the current fiscal year, lending to public sector enterprises (PSEs) reached Rs. 282 billion, a significant jump compared to Rs. 14 billion in the same period last year,” according to data from the State Bank of Pakistan.
The unprecedented increase in credit to PSEs was in contrast to the net withdrawal of Rs. 43 billion in FY22 and Rs. 53 billion in FY21.
Bankers attribute the surge to the dire financial circumstances of these state-run firms, which have been incurring losses for years.
One senior banker noted that Pakistan International Airlines (PIA), which has been struggling financially for over a decade, accounted for the majority of overall bank lending to PSEs.
The banker, however, did not reveal the amount borrowed by PIA from July to April FY23 but mentioned that power sector companies were also borrowing heavily due to losses.
The power sector distribution companies have been borrowing significantly due to mounting circular debt. The circular debt reached Rs. 2.67 trillion in the first 8 months of the current fiscal year, up from Rs. 2.253 trillion at the beginning of the year.
Due to the political sensitivity of the issue and the significant number of employees, governments have been hesitant to take action against these loss-making PSEs, leaving taxpayers to support them.