Bold SOE reforms need of the hour

Tuesday, 28 May 2024 00:02 –      – 27

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The Government is scheduled to introduce a bill that would seek ambitious targets of reforming the State-Owned Enterprises (SOEs) that would restrict Treasury guarantees for loss-making entities and set controls on their financing. If passed this bill will ease the burden on State banks due to financial guarantees on loss making SOEs.

The Bill also seeks greater transparency from the SOEs, especially concerning their recruitment. For decades these government run institutions have been job providers based on political whims and desires, reducing their productivity and increasing the overall burden on the taxpayers.

SOEs have played a fundamental part in the root of the current economic crisis, the large fiscal deficits the Government has been consistently incurring. From 2006-2021, the accumulated losses of SOEs were Rs. 1.5 trillion and the debt owed by these enterprises was Rs. 1.8 trillion in 2021.

Getting up-to-date accurate information on the state of SOEs is not as straightforward as one would like. Of the 400-odd entities, regular information was only available for 55. Even obtaining a complete list of entities has proved to be a challenge. Financials are routinely late and only a minority obtain ‘clean’ audit reports. Of the 55, only 11 had published an annual report for 2016 by the time the Department of Public Enterprises compiled its Performance Report for 2017. In the past, reports compiled by COPE and the Auditor General have highlighted repeated instances of fraud, mismanagement, corruption and negligence. The issues no longer appear to be isolated incidents of opportunistic behaviour by individuals, or occasional lapses in control, but point to deeper structural weaknesses, which need to be addressed by reforms, and when forming new SOEs.

It is reported that over 80 SOEs have been targeted for the restructuring process and they would be subjected to divestment, except in matters of national security and when there is no potential for private participation.

Despite 2024 being an election year, it is commendable that the Government has taken the initiative to introduce an SOE reform bill which will inevitably be met with resistance from unions and interested parties.

Former President Mahinda Rajapaksa has slammed the current moves towards privatisation of lossmaking SOEs claiming that they are ‘national’ assets. He boasted that during his tenure his Government had “re-acquired” some state-owned enterprises such as the Insurance Corporation, and Lanka Hospitals. Many of these ‘re-acquisitions’, including exit of the investor in SriLankan Airlines have incurred monumental losses while burdening the Treasury. It is clear the likes of Rajapaksa will make the issue a political talking point during this election season. Without the support of the Sri Lanka Podujana Peramuna (SLPP) members of parliament there is little chance of any bill getting through Parliament.

Despite the political minefield and the potential unpopularity at first, it is impossible to keep these lossmaking enterprises afloat. The restructuring of the lossmaking SOEs, if done properly in a transparent manner, will set a precedent for many other reforms which need to be done for the economy to recover. It is imperative that the Government get this process right without the usual corruption and deal-making that can destroy confidence in these reforms. President Ranil Wickremesinghe will leave a lasting legacy that will probably be recognised many years and decades after he leaves office if his administration implements this crucial policy.