Dr Shamshad Akhtar, caretaker Finance Minister, revealed at a press conference last week that Pakistan’s state-owned enterprises (SOEs) continue to lose around Rs500 billion per year. In light of our economic situation, let’s consider how immense the sum of Rs500bn in our context is before welcoming her promise of a new policy.

According to the interbank market, the rupee closed at 292.78 to the dollar on September 21. This amount of rupees equals more than $1.71bn when divided by 292.78. Our state-owned enterprise’s annual financial losses are roughly equal to a fifth of the central bank’s forex reserves.

The comparison isn’t without logic either. There are several reasons why Pakistan borrows so much foreign money, including to maintain a certain level of foreign reserves. Since the country’s fiscal gap – the difference between its income and expenses – remains large, it cannot just fill the gap with domestic borrowings alone. As a result, it must also borrow from abroad.

It is also likely that the need for borrowing will be limited if the fiscal deficit falls. As the government picks up the financial losses of SOEs, a decrease in their losses will also result in a smaller fiscal deficit and less borrowing.

In addition to SOEs losing Rs500bn annually, commercial banks lend the federal government a significant amount. According to a SBP report, the federal government borrowed Rs3.63 billion from commercial banks last fiscal year (on a cash basis).

A total of Rs500bn represents 13.78 per cent of this borrowing. As a result, the federal government’s borrowings could have been reduced by Rs500bn or 13.78 percent if our SOEs had booked zero losses.