Sri Lanka’s loss-making SOEs darken future prospects, worsens debt: think tank

ECONOMYNEXT – Sri Lanka’s loss-making state enterprises (SOEs) are a drag on the country and its prospects, eating up resources and adding to the national liabilities needing urgent fixes, a think tank has said.

Pathfinder Foundation, a Colombo based think tank said there were around 300 SOEs operating under different legal structures which are a ‘drag on the economic prospects of the country.’

"The rates of return are low and some SOEs incur losses/arrears which have a negative impact on the state banks’ balance sheets and contribute to the build-up of contingent liabilities of the government which undermines its financial stability," Pathfinder said in its report in a report Charting the Way Forward: Prosperity for All.

"SOEs also constrain the development prospects of the country by providing a low return on the considerable financial and human resources absorbed by them.

"SOE reform can contribute significantly towards strengthening the growth framework of the economy by increasing productivity/competitiveness."

Analysts say in 2011, Ceylon Electricity Board and Ceylon Petroleum Corporation was used in conjunction with Bank of Ceylon and People’s Bank to give off-budget subsidies with imported energy which generated a balance of payments crisis.

Investible savings of the people, are then frittered as operational losses. SriLankan Airlines which was taken back from Emirates had run up losses of over 100 billion rupees.

Other analysts have pointed out that state enterprises are then bailed out with Treasury bonds over which are apparently kept out of the budget and reported total debt for reasons which are not clear.

In the 2015 budget for example 170 billion rupees of bonds are due to be issued which is about 1.7 percent of gross domestic product though the budget deficit has been listed as 499 billion rupees or 499 billion rupees.

"Where majority private ownership is considered unfeasible, a stock market listing of minority stakes of commercial SOEs brings about increased disclosure which strengthens corporate governance and increases operational efficiency," Pathfinder said.

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The report said protective barriers which limit competition, increase prices and lowering quality should be removed. State monopolies should be benchmarked against international standards.

Until privatization, Sri Lanka telephone calls were expensive and people had to wait for almost a decade to get a phone, analysts say.

Pathfinder said a parliamentary committee on public enterprises had made series of recommendations which should be followed.

Analysts also say that the existence of state enterprises, which have more operational and financial leeway than government departments, also contribute massively to corruption giving opportunities to rulers and bureaucrats to fiddle with them.

 

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