An Echelon Media Company
Friday December 8th, 2023

Sri Lanka plans Temasek style SOE holding company

POLICY RATE LOSS: The biggest losses in SOEs, including the central bank came from mis-targeted policy rate which led to a currency collapse. The forex losses at SOEs including the Central Bank was about Rs1.3 trillion in 2022.

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.

Related Shock revelation on how Sri Lanka’s CPC ended up with billions of dollar debt

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)

Leave a Comment

Your email address will not be published. Required fields are marked *

Leave a Comment

Leave a Comment

Cancel reply

Your email address will not be published. Required fields are marked *

SLPP enjoying “great demand” from potential presidential candidates: Namal

FILE PHOTO – President Gotabaya Rajapaksa with nephew Namal at the opening of the last part of the Southern Expressway/PMD

ECONOMYNEXT – The ruling Sri Lanka Podujana Peramuna (SLPP) enjoys “great demand” from potential presidential candidates, and the party will have to take a call on working with incumbent President Ranil Wickremesinghe, MP Namal Rajapaksa said.

Speaking to reporters on Thursday December 07, Rajapaksa claimed several names have come up concerning the SLPP’s candidate at next year’s presidential election.

“There is great demand: entrepreneurs, businessmen, politicians, are all there. There are presidents too, ready to come forward with our party,” he said.

“Out of all these people, we will put forward on behalf of our party the candidate that can take the country forward while stabilising the economy,” he added.

Commenting on continued support for President Wickremesinghe, Rajapaksa said the while SLPP at present works with the former in the present government, the party will have to decide whether that relationship continues going forward.

“The matter of whether we work with the United National Party (UNP) in the future – this is not a politics dependent on individuals; the SLPP is a party. We will talk as a party with other parties, but no discussions will be held centred around individuals,” he said.

Rajapaksa noted that Wickremesinghe was the only member of parliament representing the UNP at the time of his election by parliament following the resignation of his predecessor Gotabaya Rajapaksa .

“If we are to collaborate with the UNP in the future, we’ll have to discuss that. Once the party has decided on that, we can get a start on those discussions. Today, we work with the president in the present government,” he said.

Last month, when asked to comment on President Wickremesinghe’s 2024 budget, MP Rajapkasa sounded rather sceptical of the president’s ambitions for turning the crisis-hit economy around.

“We must study the budget. He had presented a lot of these proposals in last year’s budget too. They don’t seem to have been implemented,” Namal Rajapaksa said, speaking to reporters after the budget presentation Monday November 13 afternoon.

Rajapaksa’s father and leader of the SLPP former president Mahinda Rajapaksa, however, spoke in favour of Wickremesinghe’s budget.


Sri Lanka’s “forward-looking” 2024 budget will instill fiscal discipline: MR

While not without its shortcomings, the older Rajapaksa said, the 2024 budget is a forward-looking one that aims to ensure fiscal discipline and put Sri Lanka on the path to recovery. (Colombo/Dec07/2023)

Continue Reading

Sri Lanka ruling party MP contradicts poll to claim his party is overtaking president’s

ECONOMYNEXT – The ruling Sri Lanka Podujana Peramuna (SLPP) is rising from the ashes albeit at a slower than anticipated pace, while President Ranil Wickremesinghe’s United National Party (UNP) still commands only 1-2 percent of the vote, an SLPP legislator said.

MP S B Dissanayake, who is not a member of the cabinet of ministers headed by President Wickremesinghe, told reporters on Thursday December 07 that support for any major political party of the island nation is on a downward trend while the SLPP alone is gaining ground.

An independent poll by the Institute for Health Policy (IHP) however shows that this is decidedly not the case. Polling data for October showed that the leftist National People’s Power (NPP) had enjoyed support from 40 percent of likely voters, having dipped 2 percent from September, while the main opposition the Samagi Jana Balawegaya (SJB) stood at 26 percent, increasing four percent from 22 percent in September. President Ranil Wickremesinghe’s UNP’s support decreased marginally to 11 percent in October from September’s 13 percent. The SLPP also saw a decrease to 5 percent from the previous month’s 8 percent.

“You can’t gamble with elections. The election must be held. We always say electrons must be held. The presidential election must be held next year. There is no alternative,” said Dissanayake.

“Parliamentary elections can be called if needed. But that’s not how it is with the presidential election. Nominations for that will have to be called by September, October next year,” he added.

Asked by a reporter if the SLPP is ready for elections, Dissanayake acknowledged that support for his party had eroded, to nothing.

“We crashed to zero. We were turned to ashes. But we will rise from those ashes. We’re not where we thought we were. The 6.9 million [votes received at the 2019 presidential election] no longer applies. We’re at about half of that. But we’re rising, like this,” he said, gesturing upwards.

“As other major parties go in the opposite direction, we’re rising slowly. But the UNP is not. It’s still on the ground, and still at 1 to 2 percent,” he claimed.

“The SLFP is there too. Those who left us are the same. Even together they cannot form 1 percent. But we’re climbing,” he said. (Colombo/Dec07/2023)

Continue Reading

Sri Lanka president appoints main opposition MP advisor

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe has appointed MP Vadivel Suresh as a Senior Advisor aimed at “fostering the integration of Hill Country Tamils into Sri Lankan society”, the president’s office said.

A statement from the President’s Media Divison (PMD) said Suresh’s “pivotal role will centre around overseeing the comprehensive integration of Hill Country Tamils, particularly focusing on the districts of Badulla, Nuwara Eliya and Rathnapura”.

“The Senior Advisor will play a key role in coordinating various initiatives related to the welfare of Plantation Companies, the promotion of women, safeguarding children, addressing disparities in Tamil schools and upgrading the delivery of health services,” the statement said.

In May this year, Suresh, who represents the main opposition Samagi Jana Balawegaya (SJB) in parliament and also serves as the general secretary of the Lanka Jathika Estate Workers’ Union, made headlines when he issued an ultimatum to opposition and SJB leader Sajith Premadasa, demanding an apology for a perceived slight on the Indian-origin Tamil community that Suresh represents. He also spoke favourably of President Wickremesinghe, hinting at a possible cross over.

Sri Lanka’s Indian-origin Tamils, most of whom have historically worked in the plantation sector and live in dire conditions on wages widely considered unacceptably low. Speaking at a May Day rally, the Badulla district MP said Premadasa must apologise to the estate Tamils for allegedly snubbing them at an event in Madulsima that he failed to attend.

“I would like to say to our leader, sir, do not take us for granted,” said Suresh.

“If you need us to stay with you, come right now to Madulsima and apologise to my people and then we shall restart our journey. Otherwise I won’t be part of that journey. There will be no Vadivel Suresh. If you don’t apologise to my people, I won’t be with the SJB,” he said.

Making matters worse, the MP also expressed a willingness to join President Wickremesinghe if he was able to raise the daily wage of plantation workers and resolve their grievances. He also said the president has been successful in containing the disruptions caused by the currency crisis.

“On this May Day, we say to both the opposition leader and the president, I and my people would join hands with a leader that worked to increase [estate workers’] wages and give them [access to the Samurdhi welfare scheme] and include them in national policy,” he said. (Colombo/Dec07/2023)

Continue Reading