ECONOMYNEXT – Sri Lanka is planning a holding company for state enterprises in the style of Singapore’s Temasek Holdings along with a law for SOE with the hope of improving governance and cutting fiscal risks, officials said.
Sri Lanka has about 80 SOEs which can move completely out of state hands and another about 20 which for various reasons can be kept in state hands.
However, SOEs are subject to the ‘agency-principal’ problem where the actual shareholders (tax payers) are not represented on the board.
Sri Lanka State Enterprise Restructuring Unit has proposed a governance structure for SOE based on nine principles, Director General Suresh Shah said.
“If you take a listed company with 1000 shareholders, these entities are compelled to publish quarterly and annual accounts,” Shah told a forum organized by the Asian Development Bank.
“SOEs have 22 million shareholders but do have to give quarterly as well as annual accounts.”
Some SOEs have not published audited accounts for several years.
“One of the principles is that SOEs move out of relying on (borrowings) from state banks via treasury guarantees,” Shah said.
Treasury Secretary Mahinda Siriwardana said SOEs particularly in the energy sector has borrowed money and run up large dollar borrowings from state banks.
The balance sheets of SOEs, banks were interlinked and it had hurt government finances.
The SOE holding company itself will not appoint directors to the companies it held, Shah said.
However, there were guidelines on how to appoint persons and their qualifications. The SOE holding company will give a ‘yes’ or ‘no’ decision for appointments.
Christina Choo, Director International Relations at Temasek International Pte Ltd, said the holding company did not interfere in the management of individual firms, which the board was expected to do.
Unlike in countries like Singapore, Sri Lanka no longer has permanent secretaries in ministries under the current constitution and the public service is broken, critics have said. It has also disrupted overall policy making capacity.
Sri Lanka not only has no stable ministry secretaries but also no stable ministries with the government itself becoming fluid from election to election. A constitutional council has not solved the problem either, critics say.
Singapore’s SOEs were well managed before Temasek was set up, analysts say.
Participants of the forum said Singapore’s economic architect Goh Keng Swee played a key part in making sure that the economy and agencies were well run.
Dag Detter, former President of Stattum, Sweden’s state wealth Fund said Goh had enshrined the principle that policy making and management of state entities had to be separate.
Singapore also does not have monetary instability as the country does not have flawed monetary frameworks like Sri Lanka which trigger forex shortages, critics say.
The problems that countries like Pakistan, Sri Lanka and Laos have with energy utilities as currencies collapse due to flawed monetary regimes peddled by Western inflationists who have rejected classical economic principles, are absent in Singapore.
Sri Lanka goes from one flawed anchor-conflicting monetary regime to another, while trying to operate a reserve-collecting central bank that countries that go to the International Monetary Fund are usually afflicted with.
Singapore Monetary Authority however rejected the dual anchor conflicting regimes (trying to collect foreign reserves while operating a fixed policy rate) unlike Sri Lanka.
The country does not have a policy rate or an independent central bank – the money producing SOE – to over-expand the monetary base to cut rates, accommodating exogenous and domestic supply shocks, triggering BOP deficits and high inflation.
Politicians, who believe in sound money, have full control of monetary authority and no un-elected inflationist officials can cut rates with printed money and try to drive growth shortcuts by targeting an output gap, in Singapore.
In countries like Sri Lanka as well as some Latin America states when rates are cut with liquidity injections, currencies collapse and energy utilities in particular run large losses.
In 2022 the largest loss making SOE in the country was the Central bank, which had borrowed dollars to keep policy rates low and accommodate unsustainable imports.
The currency fall triggered losses in the CEB, CPC and SriLanka Airlines as well as private listed companies.
The CPC itself was forced to borrow dollars and keep out of the forex market, when forex shortages emerged from inflationary open market operations (rates were cut with liquidity injections claiming inflation was low) (Colombo/Sept06/2023)