Non performing state-owned enterprises’ (SOE) have played a fundamental part in the root of the current economic crisis and led to the large fiscal deficits the Government has been consistently incurring, said Chief Executive Officer of Advocata Institute Dhananath Fernando.
He was speaking at Advocata’s media briefing, to highlight the urgency of carrying out reforms to SOE, which have become a burden to the economy.
“Sri Lanka is in urgent need of reforms of state-owned enterprises to navigate away from the crisis as delaying these reforms will only further burden the public.”
Expanding on how most of the SOEs are a vehicle for corruption he said that SOEs play a central role in facilitating corruption and without comprehensive restructuring the country will again bed on a path of another huge economic crisis. “SOEs are touted as national assets but in fact they are vehicles for corruption. Hence privatisation of SOE’s is the need of the hour.”
Participants at the Advocata event. Pic: Shirajiv Sirimane
“Restructuring SOEs offers a solution to four critical government challenges: limited revenue, high expenditure, excessive debt, and a lack of foreign investments”, Fernando stated. He emphasised that with the upcoming election year, delaying these SOE reforms comes at a cost, as their debts continue to mount, potentially leading to a return to the recent economic crisis.
“From 2006-2021, the accumulated losses of SOE’s were Rs. 1.5 trillion and the debt owed by these enterprises was Rs. 1.8 trillion in 2021,” said Research Associate at the Advocata Institute, Rehana Thowfeek.
She said that those SOEs who dole out public employment opportunities also abuse resources for political purposes and use SOEs as an outlet for political patronage.
An independent consultant, Ravi Ratnasabapathy said that state banks have become piggy banks in the recent past that finance the vanities of various politicians with letters of guarantee or comfort issued by the Treasury.
“Under normal commercial criteria these loans that were granted by State Banks on proposals backed by politicians would not have qualified to be granted.”
He recommended that it would be better if state banks do not further lend to SOEs.
“Reforming SOEs including profit-making ones can reduce the fiscal deficit, the debt burden and improve foreign direct investments,” said a veteran policy expert and an advisor of the Advocata Institute Prof. Rohan Samarajiva.
“The number of SOEs the government has added to the list of SOEs to be privatised has expanded but nothing has changed in any of them,” Prof. Samarajiva said.
Highlighting the lack of investments, Prof. Rohan Samarajiva said that to attract these investments, the reform and restructuring process has to be transparent and well communicated. “The opaqueness surrounding our current reform process has led to uncertainty resulting in a lack of investor confidence.”
He said SriLankan Airlines has been in a state of limbo for the past one and half to two years regarding whether they will be privatised or not, which has not only prevented capital investments from coming in but has also led to the lack of incentives for the human capital to invest in the services they render.
Advocata is an independent policy think tank based in Colombo, Sri Lanka.
