SOEs seen as failing SL’s ordinary citizens

By Ifham Nizam

State-Owned Enterprises (SOEs) in Sri Lanka have long served the interests of its employees and politicians, neglecting the welfare of ordinary citizens, Research Consultant at the Advocata Institute Rehana Thowfeek said.

Speaking at a recent media briefing titled, “Burden and The Urgency of State-Owned Enterprise Reform” held at the BMICH, Thowfeek emphasized the urgent need for reform, stating that despite Sri Lanka defaulting on its loan repayments for nearly two years, meaningful progress has been lacking in the country.

Thowfeek highlighted the detrimental impact state intervention in markets has on consumer welfare, attributing inefficiencies to the enrichment of politicians at the expense of taxpayers. She outlined recent reform efforts, including the passing of the SOE Reforms Act and a new Banking Act, alongside the establishment of the State-Owned Enterprise Restructuring Unit (SOERU) and the Holding Company.

However, she cautioned that the delay in addressing SOE issues poses a significant risk to Sri Lanka’s economic sustainability, noting that SOEs have become hotbeds of corruption.

CEO, Advocata Institute, Dhananath Fernando echoed these concerns, stressing the necessity for SOE reform, regardless of the upcoming election cycle. Highlighting the staggering losses incurred by key SOEs in 2022, he underscored the burden placed on taxpayers, estimating a cost of Rs. 1.7 million per registered taxpayer due to SOE mismanagement. Fernando emphasized the urgent need for restructuring, warning of worsening conditions for Sri Lankan citizens and taxpayers if action is not taken promptly.

Fernando added: ‘Despite ongoing reforms, progress has been sluggish, with reforms barely keeping pace to avert immediate crises rather than fostering long-term competitiveness. The International Monetary Fund’s recommendations, including the importance of the Holding Company and the need for skilled advisory board members, underscore the gravity of the situation.

‘Additionally, the cyclical nature of SOE debt, exemplified by Sri Lankan Airlines, poses a continuous threat to the government’s fiscal stability. Transparent divestment processes are essential to prevent further taxpayer exploitation, as politicization only exacerbates the issue.’

Financial journalist Shihar Aneez highlighted the costs of delays in reform, particularly evident in cases like Sri Lankan Airlines, where missed deadlines only escalate taxpayer burdens.

Aneez cautioned against misplaced trust in politicians’ promises, citing past failures to deliver on reform commitments. He further denounced the misuse of SOEs for political gain, noting that taxpayers foot the bill for SOE losses, which are exploited for electoral purposes.

In essence, he added that the urgent need for comprehensive SOE reform in Sri Lanka cannot be overstated, as continued inaction threatens the economic well-being of the nation’s citizens.