IMF has rejected Pakistan’s proposal to shift SOE CEO appointment powers from boards to the federal government, raising stakes in EFF talks and highlighting weak governance in loss-making public companies.
What the IMF Rejected and Why It Matters
Pakistan has faced a setback in its talks with the International Monetary Fund (IMF) after the Fund rejected a government proposal to change how chief executives are appointed in state-owned enterprises (SOEs). The government wanted to shift CEO appointment authority from SOE boards to the federal executive, but the IMF did not agree during recent review discussions.
This matters because Pakistan is negotiating the release of a $1 billion tranche under the IMF’s Extended Fund Facility (EFF). When an IMF review is ongoing, governance changes in public-sector companies become sensitive. The Fund generally wants clearer, rules-based decision-making that reduces political and bureaucratic interference, especially in entities that lose money and depend on public funding.
For the government, the proposal was about tightening executive control over loss-making public companies. For the IMF, the concern is that moving appointments directly to the executive can weaken board independence and reduce accountability. In short: the same change that gives the government more control can also increase governance risk in the eyes of lenders and investors.
Pakistan’s Proposal: Changing Section 18 of the SOE Act
According to the report, Pakistan proposed amending Section 18 of the State-Owned Enterprises Act so the executive could appoint SOE CEOs instead of leaving the decision with company boards. Under the current legal setup, boards appoint chief executives on performance-based contracts and set benchmarks for accountability.
Government officials argued the change was needed because some boards declined to endorse nominees preferred by the executive side. That resistance appears to have become a practical issue for ministries that want quicker alignment between government priorities and SOE leadership.
The IMF also rejected a related suggestion to appoint ex-officio board members from outside the relevant ministries. Officials said this would have reshaped governance arrangements, but the Fund did not accept it. Together, these rejections show the IMF is pushing Pakistan to keep the SOE Act’s governance model intact: boards appoint CEOs, contracts are performance-based, and accountability is meant to run through board oversight rather than direct executive control.
A Pattern of Pushback: Exim Bank and Oversight Attempts
This is described as the second unsuccessful attempt in recent weeks by the finance ministry to increase bureaucratic influence over leadership appointments. Earlier, lawmakers blocked a proposed amendment to the law governing the Export-Import Bank of Pakistan (Exim Bank).
The rejected Exim Bank change would have effectively given the finance division a veto over the hiring and removal of the bank’s president. Members of the National Assembly’s standing committee objected, citing concerns about excessive administrative control.
These episodes show a clear pattern: efforts to centralise appointment power are meeting resistance from both political stakeholders and the IMF. That resistance reflects a broader governance debate in Pakistan: should public entities be run with more direct executive command, or should boards and legal frameworks be strengthened to create professional, predictable management?
Governance Gaps: Interim Chiefs, Overlapping Roles, and Weak Boards
A recent finance ministry performance report highlighted governance weaknesses across the SOE sector. One major issue is the prolonged reliance on interim chief executives and delays in permanent appointments in big entities such as Sui Southern Gas Company Limited and government-owned power generation companies.
In some organisations, leadership roles overlap. The report noted that at the National Highway Authority, Port Qasim Authority, and Karachi Port Trust, chairpersons are also performing chief executive functions. Elsewhere, reform goals have not been met: leadership at Gwadar Port Authority and Pakistan Railways has not been drawn from the private sector as envisioned under reform plans.
The report warned that ad-hoc appointments lasting years weaken operational stability and slow restructuring. It also pointed to a skills and independence problem at board level, even though boards are vetted by the Cabinet Committee on SOEs chaired by Finance Minister Muhammad Aurangzeb. In practical terms, if boards lack technical depth and independence, they cannot effectively set strategy, supervise management, or enforce accountability—no matter what the law says.
The Bigger Risk: Losses, Fiscal Support, and IMF Reform Deadlines
Governance is not an abstract issue for Pakistan’s SOEs. Financial performance has deteriorated sharply. Net losses reportedly rose about 300% in the first full fiscal year of Prime Minister Shehbaz Sharif’s current administration. At the same time, fiscal support reached roughly Rs. 2.1 trillion in FY2024–25, driven largely by equity injections to reduce circular debt, while subsidies declined only modestly.
This is why the IMF is pressing for legal and governance alignment across the sector. The Fund has required Pakistan to amend laws governing at least 10 SOEs in consultation with the lender to bring them in line with the SOE Act. The deadline for these changes, including revisions related to the Exim Bank framework, has been extended to August 2026.
For Pakistan, the next steps are clear but difficult. It needs stronger boards, faster permanent appointments, and clearer performance accountability—without weakening governance safeguards. If reforms stall, the state continues carrying losses through the budget. If reforms move forward, they will likely require political discipline, professional management recruitment, and less tolerance for long interim arrangements that keep major companies in limbo.
