Home / FT View/ Intention vs. implementation

Intention vs. implementation


Comments / {{hitsCtrl.values.hits}} Views / Saturday, 7 October 2017 00:33


Cabinet this week approved signing Statements of Corporate Intent (SCI) with ten State Owned Enterprises (SOEs) next year bringing the total number to 15. But this is merely the first step in desperately needed reform. 

In July Moody’s Investors Service put Sri Lanka’s public enterprise debt at a whopping 14% of Gross Domestic Product (GDP) and warned the Government of additional risks to its finances should such debt requires any State support, which is likely to become the case as most cannot independently repay their debt.  

This translates to a massive debt pile of little under $12 billion or Rs.1, 848 billion that has accumulated due to the continuous annual losses. According to Moody’s, the total liabilities include Government guarantees, outstanding SoE debt to the banking system and outstanding SoE foreign borrowings.  

The SOE debt is a main source of economic instability in Sri Lanka because such debt often is accommodated through printed money creating inflation and external vulnerability. The SCIs are positive but they do not specify mandatory reforms or penalties when targets are missed, which may reduce their overall effectiveness.

Political appointees, poor governance and management, absence of market-based pricing and powerful trade unions that scuttle both good and bad reforms have been some of many perennial issues plaguing Sri Lanka’s SOEs for decades. However reforms in the form of privatisation come with political dangers that the Government appears reluctant to tackle. But it is increasingly apparent that delays will come at great cost to future growth prospects. 

The obvious economically efficient solution is to privatise or form Public Private Partnerships (PPPs) with as many of the SOEs as possible over a realistic period of time.  If large scale PPPs is not feasible, the Government has to look at what can be done in the short term, over the next one or two parliamentary terms, to improve the current dismal situation that might deliver better results.

A sensible place to start is by improving the running of the enterprises; make them more commercially viable, more productive. Enterprises that essentially operate in a commercial sphere, where there is some competition already or where there could be more competition would be easy contenders for this role. 

Separating commercial enterprises from monopolies is sensible and the Government has already earmarked four hotels and one hospital to be listed in the Stock Exchange. The stagnation of these projects is sparking concern as the window for reform keeps shrinking. Parallel proposals to establish a holding company such as Temasek have also been gridlocked but that is a medium term measure, which the Government can tackle once it resolves introducing better management practices within SOEs.    

So in other words the Government does not need to put all SOEs in a holding company, they can make a selection of those that operate in a commercial sphere and they can be corporatised with initially majority State ownership.

The holding company could include airlines, buses, telcos and whatever is commercially viable and subject to competition. The Government has the option of deciding what percentage to keep under its control and eventually they could even exit altogether, as has been done with some companies under Temasek. 

Whatever the Government ultimately decides, it is of paramount importance that a start must be made because debt will only continue to grow.


Share This Article


COMMENTS

Today's Columnists

Bringing beedi into tax net can yield Rs. 40 b in revenue

Tuesday, 24 October 2017

Last week, the Financial Times quoted an AFP article that stated Sri Lanka will start regulating the toddy industry to boost tax revenues from the informal sector. This same principle should be applied to the beedi trade, which has also grown unabate


Grade 5 Scholarship examination and the future of the country

Tuesday, 24 October 2017

The Grade 5 scholarship examination results have been released recently. Although this is known as the “Mothers’ exam,” the mentality of the children can be well articulated when children come from the examination halls after the exams. Today w


Need for tax reforms: Government should not lose it this time but go for them early

Monday, 23 October 2017

In the first economic policy statement, Prime Minister Ranil Wickremesinghe made a number of pledges related to taxes and tax reforms. One was that the Government would review whether the tax concessions given to investors have really delivered the e


Lessons from Geneva

Saturday, 21 October 2017

‘Mission Impossible – Geneva’ is an inspiring account of developments at the Human Rights Council in Geneva when Dayan Jayatilleka was our Permanent Representative there. It is written by his wife Sanja, which provides for fascinating insights


Columnists More