Non-negotiable reforms for election manifestos

By Dhananath Fernando

Originally appeared on the Morning

The year 2024 will be an election year. The general flow of events is that each political party and candidate will launch a manifesto of a grand-scale and present their plans for the people and the country. Most of these promises will not be implemented or will only be half implemented. In certain cases, the opposite of what was promised will be implemented. 

Most manifestos are presented in general terms with a target of 20 years ahead with little data. Many manifestos across all party lines are wish lists with no action plans.

In my view, this time there is a slight difference. 

Regardless of the party formation or whoever the presidential candidate will be, there are few reforms that are non-negotiable. Ideally, across all manifestos, there are five basic ideas which have to be the common denominator.

Strengthening social safety nets 

Following the worst economic crisis in Sri Lanka’s history and high inflation, about four million people have fallen below the poverty line. That puts seven million people under poverty. The recent Household Income and Expenditure Survey carried out by LIRNEasia and the World Bank indicates significant poverty levels and aftereffects of poverty due to the economic crisis. As a conscientious society, we need to take care of our poor people with the social safety net. 

The social safety net is not just an allowance. It is a system and a process of targeting the right people, providing an exit route, and with proper administration. The current Aswesuma programme is making some progress with World Bank assistance, but regardless of the political leader who comes to power, it is a non-negotiable condition that social safety nets have to be strengthened and improved. 

The current process has too many loopholes which have to be addressed and improved. Simplifying the process, providing the exit route, and monitoring and depoliticising has to be a continuous effort from the new leadership of the country.

SOE reforms 

Thus far, mandatory SOE reforms have been painfully slow. Many parties with vested interests are trying to delay it until the election. However, the continuation of SOE reforms is a must. 

Colossal losses, interference in the private sector, intervening in markets, creating an unfair playing field, and inefficiencies are a few reasons why SOEs played a pivotal role in Sri Lanka’s economic crisis. SOEs are vehicles of corruption and have diluted entrepreneurship and Foreign Direct Investments significantly. Without reforming SOEs, the future of Sri Lanka appears to be bleak. 

The principles announced by the SOE Restructuring Unit are in the right direction, but the SOE Act and reforms of the Ceylon Electricity Board, Ceylon Petroleum Corporation, and many other networking industries are a must. 

Anti-corruption and governance reforms

Execution of anti-corruption laws and governance reforms is another area which has no room for negotiation. The International Monetary Fund (IMF) Governance Diagnostic and many other locally-developed reports on governance provide direction on what needs to be done. 

Strengthening our Judiciary system, transparency and accountability in our tax system, removing tax exemptions, and repealing the Special Commodity Levy and the Strategic Development Act too falls under governance and anti-corruption reforms, as those acts provide the legal opportunity for corruption. 

There is a strong sentiment from people on the contribution of corruption to the crisis, so taking long-term measures regarding corruption is a must. Anti-corruption and governance reforms go beyond going after corrupt politicians. Rather, it is a system and framework for minimising government influence. Some reforms are complementary and reforming SOEs is also a key component of anti-corruption and governance reforms, as these SOEs play a vital role in corruption.

Following the IMF programme and debt restructuring 

Given the international financial architecture, we have no option other than sticking to the IMF programme. We can negotiate some of the actions that we have promised, but overall indicative targets and reforms have to be maintained. Otherwise, it will be yet another incomplete IMF programme and the debt restructuring process will be in jeopardy. 

Debt restructuring and the continuation of the IMF programme are very much interconnected. At the moment, external stakeholders are concerned about political instability and in fact, the IMF’s first review identifies the political risks for the continuation of the IMF programme. A commitment from any political leader on sticking to the programme will help Sri Lanka in rebuilding relationships with the world.  

Trade reforms and joining global supply chains 

We have to grow our economy to emerge from this crisis. Tax revisions make it likely that growth will slow down and the only solution to grow small island nations like Sri Lanka is through global trade. Our problems regarding global trade are mainly the problems in our own regulations and systems. 

We have to remove our para-tariffs and simplify the tariff structure for a few tariff lines. Not only will this help trade, but consumers will also have a greater choice of goods and services as well as competitive prices. 

On the other hand, the Government can improve the revenue from Customs since at the moment, the high tariffs are a main reason for revenue leakage in the form of corruption. Trade reforms are about growth, minimising corruption, encouraging exports, and assuring reasonable prices. Even at present, after very high taxes, there are levies such as the Special Commodity Levy, Ports and Airports Development Levy, and a huge array of taxes which hinder the competitive nature of our economy.

These five policies, in my view, are non-negotiable. If any administration deviates from them, it is very likely that we will fall back a few miles behind where we started. 

Looming political and economic challenges ahead of elections

By Dhananath Fernando

Originally appeared on the Morning

“We know what should be done to get the country on the right track, but we don’t know how to get power back after implementing the policies.” This is a popular statement I hear often when I meet quite a few politicians. The truth is that politicians do not know how to get back power because it’s not an attractive solution.

The popular policies that bring politicians into power are the very same that inspire their ousting at the very next election cycle. People hardly object to good policies unless the same politicians instigate false propaganda. The Right to Information (RTI) Act was just one such instance.

As an election is due next year, it is vital to understand and remember our priorities, otherwise our politicians are likely to take a wrong turn and pass the buck back to the people.

In an election year, the behaviour of any political party is to completely abandon rational economic reforms and play to populist narratives that result in outcomes that are the complete opposite, with the motive of coming to power.

Bringing down fuel prices and announcing other types of subsidies are common tactics. This is harmful, especially when those benefits cannot be financed sustainably, or in some situations, brought into life in the first place.

Even if it does not retain power, the newly-elected government will have a tough time preventing plans that have already been put in place and enacting better policies.

Political risk

In the current context, we run a very high risk of our politicians bringing us back to square one; i.e. another economic crisis. This, given the fact that 2024 is set to be an election year, is a recipe for disaster.

All political parties will shift their focus to slowly becoming more populist rather than being driven by objectivity. Therefore, the real risk is going back to another debt restructuring if we fail to grow the economy and our exports.

There are many politicians who do not understand the gravity of the need for reforms. Regardless of which party or coalition comes to power, there are fundamental issues that need to be addressed.

The process is more or less the same as handing over a house with structural issues from one tenant (government) to the other. The new tenant cannot function because neither the previous tenant nor the owner (people) is willing to fix the fundamental problems.

Risk of a second debt default

Given the unstable political environment coupled with a country already going through debt restructuring, the risks of a second debt default are astronomically high. As we are still struggling with finalising the first debt restructuring, adding a second one into the mix will leave us in dire straits.

The second one will undoubtedly be harder, especially given the significant increase in interest rates and being unable to print money with the new Central Bank Act. If we fail to raise money through markets in order to roll over debt and if we are not open to increasing interest rates, the only option we will be left with is to default again. At that point, most likely there will be pressure once again to amend the newly-enacted Central Bank Act to allow money printing.

Of course, that would be an inflationary measure and we will be back at square one with a balance of payments crisis, debt crisis, humanitarian crisis, and likely a banking crisis too.

Solutions: A common minimum programme for reforms

Reforms are easier in the first 100 days of any government. If we fail to enact reforms within the first 100 days, more often than not, no reforms will take place. Failing to undertake reforms in 100 days means a cost of a five-year delay plus many bad policy decisions in the middle, which are costly and difficult to reverse.

Ideally, if key political parties come to an agreement before an election on selected reforms and execute them regardless of who comes into power, it will at least ensure some stability for Sri Lanka. There are many ideas that all political parties have in common.

Regarding State-Owned Enterprise reforms, there is no political party that says the Government should run an airline. Even National People’s Power Economic Advisor Dr. Anil Jayantha, in an interview with Advocata, noted that they did not believe the Government should do any business with hotels.

Accordingly, there are many other similar areas where we can arrive at an agreement with little difficulty. Therefore, regardless of who wins elections, people can win and sustain some of the economic reforms.

The truth is that reforms are inevitable if Sri Lanka needs to move forward and for any political party to sustain its power. Implementing bad policies, especially considering the status of our country, will make it very difficult to sustain power, because then we will be setting the standard for a new normal in economics and politics.

Can Sri Lanka’s Economic Revival Weather the Storm of a 2024 Election?

By Rehana Thowfeek

Originally appeared on Groundviews

Photo courtesy of EFE

By all estimates, Sri Lanka’s economy is expected to grow around 1.5% in 2024, making inroads into reversing the economic contraction the country experienced since 2020. Sri Lankan authorities have reached a staff level agreement with the IMF earlier this month and, pending executive board approval, Sri Lanka will receive the second tranche of $330 million soon.

Sri Lanka’s reserve position has improved somewhat from the record low levels it was once at – there are $3.5 million currently in reserves, which is sufficient to cover 2.6 months worth of imports, albeit still a worrisome situation. Tourism earnings and worker remittances are picking up and the cumulative trade deficit has narrowed in comparison to last year. Inflation is tapering at 0.8% in September (the base year has been revised to 2021), the result of the tight monetary policy stance taken by the Central Bank since April 2022.

Import restrictions brought in response to the dwindling foreign reserves are now being phased out with all but a few items still restricted. Due to the rapid decline in purchasing power experienced by the people in the past year, demand for imports may remain subdued but maybe offset by more favorable credit conditions. Policy rates have been further reduced and due to more favorable economic conditions banks are now showing greater willingness to lend in comparison to 2022, which bodes well for business revival.

The ability of Sri Lanka’s economy to redeem itself and firmly place itself on a path of inclusive and sustainable growth lies in how successfully the country can execute the necessary economic and governance reforms. Debt restructuring will ease the burden of external debt repayments in the medium term but eventually Sri Lanka will have to start servicing its external debts once again.

If Sri Lanka does not manage to adequately grow its economy to accommodate these payments with sufficient tax revenues and export earnings, the country risks slipping back into a situation similar to that experienced in 2021 and early 2022. The global situation is not favorable for economic recovery with many large economies undergoing recession and multiple wars being fought on different fronts.

The tourism industry shows signs of recovery but can be impeded by the labor migration. The tourism industry already faced issues with attracting labor, as it is not seen as an attractive or well-paying industry to work in. With workers either having left the industry to join other industries in the wake of the Easter attacks and the Covid impact or migrating to other countries due to the crisis, the industry will struggle to cater to the demand that it once managed to.

This calls for exploring the possibility of opening up the borders for foreign labor to work in Sri Lanka, which is a controversial issue to say the least. With mass migration, the country’s health sector is also in a bad state but opening up this sector to foreign labor is even more controversial than it would be to the tourism sector.

The importance of governance reforms cannot be overstated; addressing the governance failures that precipitated Sri Lanka’s economic decline over the past few decades is the only way to prevent reneging back into bad policy making. Checks and balances are important for a well-functioning economy and society. Since pockets have grown fat and powerful with lax governance structures for many decades, dismantling these systems that work in favor of a few and shaping them to work in favor of many is a difficult endeavor in the best of time.

Reforms to state owned enterprises are in the works, albeit at a slow pace. There are plans to pass the necessary laws to divest State Owned Enterprises (SOEs) and to set up a holding company to manage whatever SOEs remain. Reforms to SOE behemoths like the Ceylon Electricity Board are being tackled separately. The country’s flagship poverty program, Samurdhi, is being rehauled into a consolidated welfare program called Aswesuma with better targeting mechanisms, better entry criteria and exit clauses to make the program more effective. The new program also attempts to depoliticize welfare which hindered the effective function of its predecessor.

The budget, which can effectively signal the incumbent government’s commitment to reforms, is already off to a bad start. The government announced that public sector salaries would be increased. With no access to printed money from the Central Bank since the enactment of the new Central Bank Act nor access to foreign loans, the government has decided to increase VAT, perhaps to fund these salary increments.

The incumbent government has made no attempt to cut public sector expenditure and has instead opted to further increase its salary bill, which already swallows up a massive share of the tax revenue – 65% in 2022. This number is even higher when you add in the pensions bill. The government has fallen short of IMF targets on tax revenues in the recent review, so increasing expenditure further, especially just to pacify public sector workers in the light of elections, is utterly imprudent in the context.

Continuing to burden the general public with taxes to fund frivolous, unbridled expenses with no meaningful reform of public expenditure would serve as a harsh reminder to the people of Sri Lanka that the system change once demanded by the sea at Galle Face is yet to be seen, precipitating another wave of civil unrest.

It is not an understatement to say that the precarious stability that has been achieved hangs in the balance, and now with a looming election, the precarity worsens. There is no political consensus on the way forward which can solidify the reforms that the country ought to take – every possible reform is contested which does not bode well for the economy. The jostle is between the NPP, SJB, SLPP+UNP and other possible wildcards such as Dilith Jayaweera and Dhammika Perera, all of whom propose varying economic policies.

The resolution lies in a concerted effort towards comprehensive economic and governance reforms, fiscal prudence and a unified political will that transcends party divisions. The critical choices ahead will determine whether Sri Lanka can chart a stable, inclusive and sustainable economic course or succumb to the persistent vulnerabilities that always threaten its progress.

Shaping Sri Lanka’s growth narrative

Originally appeared on The Morning

By Dhananath Fernando

Securing the second tranche from the International Monetary Fund (IMF) is an important step, especially to support our ability to successfully carry out the debt restructuring process. It is not just about the $ 330 million that this tranche brings; it is about the credibility it gives to the reform process and the confidence it instils in the international community, including bilateral and multilateral creditors. 

The moment we deviate from the IMF programme and allow our debt to remain unsustainable, we risk regressing to square one. However, we should not get our aims and priorities mixed up. Our aim is not to secure IMF tranches. We need to prioritise achieving deep and meaningful reforms. The IMF tranche will follow as a result. 

Ultimately, our goal should be to ensure that, in the future, we never find ourselves in a position where we need to turn to the IMF for assistance.

As this column has discussed many times, it is essential to recognise that the IMF can only stabilise the economy and facilitate credit access, which is a crucial element in our debt restructuring process. The responsibility to clear out the roadblocks that stand in the way of economic growth rests solely on our shoulders. We have to carry out reforms that go beyond the scope of the IMF programme. 

Three key reforms aiming to boost economic growth will be discussed below.

Reforms to attract more tourists 

Focusing on tourism can significantly contribute to the country’s economic recovery. In addition to bringing in foreign exchange, their spending in domestic markets contributes significantly to Government revenue through VAT. Instead of fixating on the number of inbound tourists, our focus should be on the number of nights a tourist stays in the hotel/country. Simplifying the entry process will attract more tourists, and more importantly, entice them to prolong their stay. 

In line with Daniel Alphonsus’ recent article, making the visa process more flexible for tourists is crucial. Our focus should not be on visa fees, but rather to encourage tourists to spend more. This allows local industries to capture the revenue and enhances Government revenue through VAT and various other forms of fees and indirect taxes.

Offering a two-year multiple-entry visa for citizens from countries with a per capita GDP four times higher than Sri Lanka’s is a strategic move to attract high-income tourists. Given our current fiscal situation, carrying out extensive global promotional campaigns are beyond our financial capacity. Therefore, our focus should shift to initiatives that can be implemented effectively with just a stroke of a pen.

Addressing labour force shortages 

Retaining skilled talent within Sri Lanka is a challenge faced by many industries, including blue chip companies. These labour shortages are anticipated to affect us from next year onwards, jeopardising the sustainability of existing businesses.

To address this issue and prevent businesses from relocating, it is essential to allow companies the flexibility to recruit from international markets. This approach is crucial to sustaining businesses and their supply chains. Permitting companies to hire skilled labour from outside Sri Lanka will not only alleviate pressure on the country’s labour market, but also offer advantages to consumers and businesses competing in global markets.

Further, it encourages the transfer of knowledge and skills, leading to improved productivity. For example, collaborating with professionals from countries like Japan could introduce advanced productivity management techniques, enhancing overall efficiency. Free movement of people is a crucial step in improving our productivity and driving the economic growth of the country.  

If relaxing labour market regulations proves too complicated, a pragmatic alternative is to permit foreign spouses of Sri Lankans to work in Sri Lanka. This measure could help in attracting more skilled workers, providing an incentive for Sri Lankans with families of mixed citizenship to return and settle here. Importantly, this reform won’t incur any costs for the Government; it simply involves changing existing regulations.

Industrial zones for private sector and simplifying tariffs  

For us to emerge from this crisis, our primary focus should be on global trade. The complicated tariff structure that is currently in place enables corruption and is a source of frustration for both exporters and importers. Simplifying the tariff structure into three to four tariff bands is essential to streamlining Government revenue administration. 

The existing high and complicated tariffs lead to massive leakages of tariff revenue. Moreover, these tariffs discourage imports, hampering productivity and burdening consumers. Implementing a straightforward tariff structure is imperative, removing para-tariffs such as CESS and PAL. Furthermore, we must ensure that the tariff structure for any HS Code is easy to compute and has minimal deviations.

A significant bottleneck in our system that hinders investments and export growth is the shortage of land for industrial activities. Currently, 95% of the land in Board of Investment (BOI) industrial zones in the Western Province is occupied. Investors are required to obtain approximately 17 approvals in order to set up operations and this process can take more than two years. 

Regrettably, the BOI has not initiated any development projects in the last 15 years. A viable solution that the Government should consider is utilising State-Owned Enterprise (SOE)-owned land and allowing the private sector to develop industrial zones on it. 

Private sector-run industrial zones can operate as a plug-and-play model, where the private sector attracts investors and secures the necessary approvals in advance. This approach does not require any Government investments; in fact, it can generate more revenue for the Government through leasing or selling the land for development. 

If Sri Lanka is genuinely committed to economic growth and recovery from the crisis, our primary focus should be on implementing these reforms rather than solely relying on the IMF.  While the IMF can provide us with short-term stability, it’s our responsibility as Sri Lankan citizens to shape our own growth narrative.

Economics behind much-needed reforms

Originally appeared on The Morning

By Dhananath Fernando

The three types of fears we endure as a country

Fear is a universal emotion and we have all come across three major types of fear in our lives. The fear of failure is the most common one that often paralyses us and prevents us from taking action. The fear of success is a lesser-known fear that keeps us from achieving our goals. Finally, the fear of judgement causes us to fear being evaluated by others.

Unfortunately, in Sri Lanka, the fear of reform has encroached upon all three of these personal fears. In public policy, there are currently three primary fears:

Fear of reforming State-Owned Enterprises

It is no secret that Sri Lanka’s State-Owned Enterprises (SOEs) have been one of the main reasons for the country’s economic crisis. Everyone agrees that SOEs need to be reformed, but there are different opinions on how to do it. Some believe that the losses are mainly due to corruption of politicians and political influence against reforming SOEs. Others believe that with capable management, SOEs can become profitable.

However, in my opinion, the absence of competent people to run State institutions and corruption are both symptoms of the absence of a market system.

In a market system, the focus is on making profits and minimising corruption. However, it doesn’t mean everything is perfect; rather, it is geared to minimise corruption and maximise profits. Therefore, opening up the market can help solve this issue.

One key fear that is brought forward is the risk of high prices when the markets are opened. However, based on our experience, prices decrease with the opening of markets and the allowing of more competition.

For instance, Sri Lanka’s telecommunications prices are some of the lowest in the region and the entry of Lanka IOC into the fuel market did not increase prices. On the other hand, the Ceylon Petroleum Corporation (CPC) incurred losses and it had to pass these on to taxpayers. Its losses of Rs. 632 billion over eight months in 2022 will have to be borne by the people of Sri Lanka through the contribution of about Rs. 28,000 per person.

It is evident that the absence of a market system is one reason for the profits not being sustainable, so we always drift back to where we started. The losses of the CPC for the first eight months of 2022 are greater than the allocation for both health and education together, which is about Rs. 550 billion.

Such high losses are indicative that all loss-making institutes, including the CPC, SriLankan Airlines, and the Ceylon Electricity Board (CEB), should be restructured to reduce the burden on the Treasury and thereby the taxpayer.

The focus is not only on prices but also on the quality and accessibility of the service. In the past, during fuel shortages, people paid Rs. 1,000 per litre on the black market. Therefore, simply claiming that the Government can provide fuel at a lower price is not very logical. We need a Sri Lanka where people can afford and decide what they want to use rather than the Government deciding what we should do. This is the Sri Lanka we envision.

Regulation is crucial and the Government needs to create a regulatory framework to ensure a level playing field. The current Public Utilities Commission Act has provisions, but we need to move towards a competition commission to ensure fair competition.

Fear of competition

The second fear among Sri Lankans is the fear of competition. We consider competition as one person winning and the other person losing. However, it is a formula where both sides can win. The fear of competition mainly arises in global trade and we often wish to block our competition by imposing high tariffs. However, this has been detrimental to Sri Lankans and to our businesses and we need to move past this fear.

It is also important to remember that competition is the key to maximising consumer welfare. Competition brings in choice to the market and leads to competitive prices. Simultaneously, it incentivises firms to optimise their processes and functions – the key to remaining competitive and profitable. Therefore, competition should be thought of as a win-win scenario where firms are incentivised to optimise their operations and grow while consumers enjoy maximised welfare.

3. Fear of imagining a prosperous Sri Lanka

It is understandable to have concerns and fears about the transition to a more prosperous Sri Lanka, especially when it involves a shift away from a State-dependent model. However, it is important to recognise that a prosperous Sri Lanka can bring many benefits and opportunities for its citizens.

A prosperous Sri Lanka can create jobs and provide opportunities for entrepreneurship and innovation. It can also attract foreign investment and contribute to the growth of the economy. With a thriving economy, the Government will have more resources to invest in areas such as education, healthcare, and infrastructure, which can lead to an overall improvement in the quality of life for its citizens.

It is also important to acknowledge the role of the private sector in providing essential services and goods, as well as contributing to the growth of the economy. While the Government has a role to play in ensuring the safety and wellbeing of its citizens, it is often the private sector that drives innovation and progress.

As Helen Keller once said, avoiding danger does not necessarily lead to safety in the long run. It is important to face our fears and embrace change, even if it is uncomfortable at first. With the right mindset and a willingness to adapt, a prosperous Sri Lanka can be within reach.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Why Sri Lankans fear development

Originally appeared on The Morning

By Dhananath Fernando

The three types of fears we endure as a country

Fear is a universal emotion and we have all come across three major types of fear in our lives. The fear of failure is the most common one that often paralyses us and prevents us from taking action. The fear of success is a lesser-known fear that keeps us from achieving our goals. Finally, the fear of judgement causes us to fear being evaluated by others.

Unfortunately, in Sri Lanka, the fear of reform has encroached upon all three of these personal fears. In public policy, there are currently three primary fears:

Fear of reforming State-Owned Enterprises

It is no secret that Sri Lanka’s State-Owned Enterprises (SOEs) have been one of the main reasons for the country’s economic crisis. Everyone agrees that SOEs need to be reformed, but there are different opinions on how to do it. Some believe that the losses are mainly due to corruption of politicians and political influence against reforming SOEs. Others believe that with capable management, SOEs can become profitable.

However, in my opinion, the absence of competent people to run State institutions and corruption are both symptoms of the absence of a market system.

In a market system, the focus is on making profits and minimising corruption. However, it doesn’t mean everything is perfect; rather, it is geared to minimise corruption and maximise profits. Therefore, opening up the market can help solve this issue.

One key fear that is brought forward is the risk of high prices when the markets are opened. However, based on our experience, prices decrease with the opening of markets and the allowing of more competition.

For instance, Sri Lanka’s telecommunications prices are some of the lowest in the region and the entry of Lanka IOC into the fuel market did not increase prices. On the other hand, the Ceylon Petroleum Corporation (CPC) incurred losses and it had to pass these on to taxpayers. Its losses of Rs. 632 billion over eight months in 2022 will have to be borne by the people of Sri Lanka through the contribution of about Rs. 28,000 per person.

It is evident that the absence of a market system is one reason for the profits not being sustainable, so we always drift back to where we started. The losses of the CPC for the first eight months of 2022 are greater than the allocation for both health and education together, which is about Rs. 550 billion.

Such high losses are indicative that all loss-making institutes, including the CPC, SriLankan Airlines, and the Ceylon Electricity Board (CEB), should be restructured to reduce the burden on the Treasury and thereby the taxpayer.

The focus is not only on prices but also on the quality and accessibility of the service. In the past, during fuel shortages, people paid Rs. 1,000 per litre on the black market. Therefore, simply claiming that the Government can provide fuel at a lower price is not very logical. We need a Sri Lanka where people can afford and decide what they want to use rather than the Government deciding what we should do. This is the Sri Lanka we envision.

Regulation is crucial and the Government needs to create a regulatory framework to ensure a level playing field. The current Public Utilities Commission Act has provisions, but we need to move towards a competition commission to ensure fair competition.

Fear of competition

The second fear among Sri Lankans is the fear of competition. We consider competition as one person winning and the other person losing. However, it is a formula where both sides can win. The fear of competition mainly arises in global trade and we often wish to block our competition by imposing high tariffs. However, this has been detrimental to Sri Lankans and to our businesses and we need to move past this fear.

It is also important to remember that competition is the key to maximising consumer welfare. Competition brings in choice to the market and leads to competitive prices. Simultaneously, it incentivises firms to optimise their processes and functions – the key to remaining competitive and profitable. Therefore, competition should be thought of as a win-win scenario where firms are incentivised to optimise their operations and grow while consumers enjoy maximised welfare.

3. Fear of imagining a prosperous Sri Lanka

It is understandable to have concerns and fears about the transition to a more prosperous Sri Lanka, especially when it involves a shift away from a State-dependent model. However, it is important to recognise that a prosperous Sri Lanka can bring many benefits and opportunities for its citizens.

A prosperous Sri Lanka can create jobs and provide opportunities for entrepreneurship and innovation. It can also attract foreign investment and contribute to the growth of the economy. With a thriving economy, the Government will have more resources to invest in areas such as education, healthcare, and infrastructure, which can lead to an overall improvement in the quality of life for its citizens.

It is also important to acknowledge the role of the private sector in providing essential services and goods, as well as contributing to the growth of the economy. While the Government has a role to play in ensuring the safety and wellbeing of its citizens, it is often the private sector that drives innovation and progress.

As Helen Keller once said, avoiding danger does not necessarily lead to safety in the long run. It is important to face our fears and embrace change, even if it is uncomfortable at first. With the right mindset and a willingness to adapt, a prosperous Sri Lanka can be within reach.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

New players in SL’s petroleum market

Originally appeared on The Morning

By Dhananath Fernando

I remember a litre of diesel being about Rs. 16 during my school years. I took the bus to school or sometimes, a very old Toyota van. When the bus or van stopped at the filling station, I would watch with curiosity how the filling station attendant pumped fuel.

The price was handwritten on the fuel dispenser in paint and the dispenser itself was visually similar to the emoji which appears when we type ‘gas’ on our mobile phones. The price and the number of litres indicated on the fuel dispenser was a manual system, where numbers moved up like an old cricket scoreboard. Restrooms at a filling station were rare. All fuel stations were operated mainly by the State-owned Ceylon Petroleum Corporation (CPC).

Today, the atmosphere at a filling station is quite different, with more sophisticated infrastructure such as digital fuel dispensers and digital payments methods. More payment options are available and some credit card companies offer discounts for fuel. Many fuel stations have restrooms and some even have mini super markets.

Currently, the market has two players – the CPC and the Lanka IOC. A new discussion is taking place about opening our market to three additional players. If memory serves right, when Lanka IOC entered the Sri Lankan market, the Chinese Government-owned Sinopec was offered access to enter the market as well.

However, at that moment in time, it did not want entry. Even though a two-player market is not perfect, it still brought a significant upgrade to the service and quality of filling stations. In this context, how should we view the entrance of more players into the fuel market?

First, a higher number of players is better than a lower number of players, because it increases the freedom of choice for people. It also downsizes risk. If one company fails, we have the other companies supplying fuel. During the economic crisis, the Indian-owned Lanka IOC provided services when our State-run CPC failed. As such, more players and a level playing field is a prerequisite to better and constant services.

Selection of players and importance of pricing ability

More players are healthier for a market system in an ideal situation, but the regulatory barriers have to be minimal. In an industry where capital expenditure is very high and a licensing process is involved, at the very least, the selection process has to be undertaken through a transparent and competitive bidding process.

Importantly, the new players should have price flexibility. In the last agreement with the Indian Oil Corporation (IOC), one condition was that IOC needs Government approval for any price revisions.

Think of an instance where the IOC experimented with a more environmentally-friendly fuel variant with a higher price – this cannot be sold in the Sri Lankan market until permission has been obtained from the Government. When private players are given the freedom to decide the price, they can come up with better solutions.

For instance, in certain countries there is a service where fuel can be delivered to homes, similar to food delivery. This is a valuable service for boat and generator users. When a supplier delivers fuel with safety measures, it cannot be sold at the usual price. In an environment with price controls, such augmented services will not emerge.

Govt. should not engage in petroleum business

While there will be three more players entering the market, this is a solution slightly removed from the best one. The new players have been provided the licence to import fuel and store and distribute fuel at fuel stations. However, petroleum product transmission, which is a high capital intensive service, is mainly owned by the Government.

Petroleum transmission services require pipes and other capital-heavy infrastructure to load, unload, and transfer fuel from the ship to the refinery or respective storage. Ideally, all players should invest in a petroleum transmission company such as the Ceylon Petroleum Storage Terminals, because it is a shared service which requires high capital investment in foreign exchange for infrastructure development.

Keeping such an important intermediary service in one Government institute is a big risk for the entire supply chain. One interruption in the intermediary service can control the outcome of the entire fuel market. When the Government engages in business, it will not be a level playing field and no investor would like to risk their money.

Burden of CPC on the Treasury

Another reason why the fuel market and the CPC require reforms is the colossal losses incurred just by maintaining its duopoly status. For the first eight months of 2023, the losses were more than Rs. 600 billion (Figure 1). For comparison, this figure is six times the expected revenue from PAYE (Pay As You Earn) tax from all workers, including petroleum workers.

The main reason for the significant loss is the deprecation in the currency, but even with that consideration, since 2015, only a marginal profit has been made in three years. CPC’s debt to the banking sector is close to Rs. 700 billion and of that, about Rs. 561 billion is guaranteed by the Treasury (Figure 2). The CPC’s negative equity of Rs. 334 billion indicates the magnitude of losses that have accumulated over time.Geopolitics at play

We need to understand the reasons why big companies are attempting to enter the Sri Lankan market. It is not with the main objective of simply supplying fuel to the 22 million market. Most likely, it is to access the shipping routes and the Bay of Bengal market spanning from India to Bangladesh.

On the other hand, another Expression of Interest has been called for an oil refinery in Hambantota as per news reports. Accordingly, the Chinese company will have an added advantage, with both access to the Hambantota Port and now the ability to import, store, and distribute fuel.

Geopolitics at play

We need to understand the reasons why big companies are attempting to enter the Sri Lankan market. It is not with the main objective of simply supplying fuel to the 22 million market. Most likely, it is to access the shipping routes and the Bay of Bengal market spanning from India to Bangladesh. 

On the other hand, another Expression of Interest has been called for an oil refinery in Hambantota as per news reports. Accordingly, the Chinese company will have an added advantage, with both access to the Hambantota Port and now the ability to import, store, and distribute fuel. 

While geopolitics will come into play,  the fundamentals remain the same. The Government should not engage in business and more players should be allowed to enter the market. Processes have to be competitive and transparent. The outcome of this will be that consumers will win and petroleum sector workers will have higher wages. 

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Figure 1

Source: CPC Annual Reports and Ministry of Finance Annual Reports

Figure 2 

Source: Annual Reports of the Ministry of Finance and the CBSL

Government should walk the talk with transparency

Originally appeared on the The Morning

By Dhananath Fernando

One day, I was enjoying a cup of coffee at a coffee shop in the greater Colombo area located on prime property. A gentleman joined me and we began a conversation. As we spoke, he mentioned he was actually the landlord of the building and had rented it out to someone else.

I asked: “Why are you renting this place? Isn’t it better for you to run this shop so you can earn a better return?” His response was: “Actually, I tried for two years and made a profit too.” I was surprised that renting it was more profitable than running a business.

I inquired about the reasons. He mentioned that he was making a profit of about Rs. 50,000 per month by running his own business and he could not exceed it. But by renting out the same building, he earns about Rs. 350,000 as the rent income.

The rest is not rocket science; when you have the capacity to earn Rs. 350,000, it doesn’t make any sense to settle for 50,000.

But in national economic issues, people often get carried away with just the profit without considering the asset value which generates that revenue.

Divesting of SOE shares

A recent case is the argument against divesting the majority shares of a State-owned telecom company and a hospital. Often, the argument is: “Why should the Government be selling the profit-making entities while the loss-making entities are the problem?”

Of course, the loss-making ones are the main problem, but the Government making a profit doesn’t really reflect whether that profit is worth it or not – as with the case of the landlord of the coffee shop. If the Government makes just Rs. 50,000 when the actual capacity is making Rs. 350,000 with a better purpose, it is in fact a loss of Rs. 300,000.

Many people are not aware of the fact that the Return on Assets (ROA) of the profit-making entities owned by the State is far less than the industry standard. Some are making profits simply by being a monopoly or getting preferential treatment from the Government. The value of the business has to be based on the value of assets it owns. In other words, what matters more is the profitability of the company in relation to its assets.

Motivation for profits

So when we compare the ROA of a Sri Lankan State-owned telecommunications company with the private sector telecommunications companies, it is evident that the State-owned telecom company has a lower ROA compared to private companies. It is not surprising because the motivation for profits comes with ownership.

When there is no owner and when it runs on taxpayer money spent by political appointees, there is no intention of maximising profits. In that structure, the incentive is for longer survival and absorption is reduced as much as possible.

It is a classic case similar to a farmer encroaching on forest land to yield more harvest without considering productivity in the long run. It is not the size of the harvest that matters but the harvest that can be obtained per unit of land. Similarly, it is not the profit gained but the profit in relation to a unit of assets.

On the other hand, we need to realise these losses have to be borne by taxpayers. That is one reason why the Government should not run any business. Even the ones which make profits can easily drift to loss making when governance structures are not in place. It has happened multiple times.

When we restructure SOEs, of course the first preference would be for profit-making ones. It’s not rocket science, since no one wants a loss-making entity. When someone takes a loss-making entity and if the entity has a high level of liabilities, those liabilities have to be absorbed by the Government – meaning, the people.

That is one reason why the Government should not engage with commercial operations because losses are borne by the citizens while the benefits of profits are not necessarily shared among the citizens.

Transparency and accountability key

In the process of reforming or divesting the assets of the State, it is of paramount importance to proceed the transactions on a competitive basis. One reason why people have suspicion over State asset divestments and privatisation is because the previous transactions had a lot of grey areas. Thus, the suspicion is obvious.

If the Government is committed to reforming State-Owned Enterprises (SOEs) and attracting the right type of investors, the only tool it has is transparency. Any bad transaction will backfire on the rest of the reforms, extending to even debt restructuring and bilateral support. We can only advise and play the role of watchdog – the people who have power should walk the talk.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

What next for Sri Lanka?

Originally appeared on The Morning.

By Dhananath Fernando

New predictions are emerging that debt restructuring and International Monetary Fund (IMF) Board-level agreement may take until the end of this year. Another ongoing discussion is about the Local Government Elections and postponement of elections. Electricity tariffs are to be increased and 10 banks have been downgraded by Fitch Ratings as a recalibration of Sri Lanka’s sovereign rating.

Overall, it appears that economic reforms are being sidelined faster than expected, without realising the consequences of each action. It is true these complicated problems have no easy, straightforward solutions. No solution will be perfect and the validity, impact, and effect of any solution will be weighed against time. To put it simply, a solution that appears valid and reasonable today may not sound reasonable in a few weeks or months.

Each action has its consequences and inaction will also have consequences. It will be a battle between the consequences of action and inaction and the continuation of this for the next few years.

Reforms and restructuring

Let’s take the case of reforming State-Owned Enterprises (SOEs). With the election cycle commencing with Local Government Elections, attempts at restructuring SOEs such as the Ceylon Electricity Board (CEB) may be delayed. This delay means that inefficiencies will continue and tariffs will be increased without any competitive basis. This will in turn impact all businesses as well as macroeconomic indicators given the monopoly and the size of the electricity business. It may also extend the duration of power cuts and pave the way for another wave of protests, worsening the business environment.

Reforms too will be painful. Trade unions and some employees will be affected and an electricity monopoly can interrupt the life of the common man in multiple ways, with political and capital implications.

The cost of not implementing reforms will be much higher politically and economically, as it would be a cyclical result. Therefore, the reasonable decision is to restructure loss-making SOEs. Unfortunately, there is no other way out and delaying this further may invite darker years in the future.

The delays in the debt restructuring process will have its own consequences, both economically and geopolitically. The debt restructuring delay is a repercussion of maintaining bad foreign relations.

Poor international relations

How we treated India over the Economic and Technology Cooperation Agreement (ETCA) and in discussions on the East Container Terminal was extremely unprofessional and irresponsible. There is a significant difference between disagreement, negotiation, and unprofessional treatment.

By suspending the Light Rail Transit (LRT) project, we lost the respect and trust of Japan. We even annoyed China with the fertiliser matter and continuous regulatory delays with the Port City project. Our relations with the Middle East deteriorated with the cremation of dead bodies of the Muslim community during Covid.

We are not even in the good books of the US over the way we dealt with the MCC grant. Simply put, we do not have a friend who will extend a helping hand during troubled times. It is said that countries have longer memories than people. As such, we have limited our options due to our own grave mistakes.

A stalemate in a crisis

Economics and politics often go hand in hand. During an economic crisis, instability in politics is unavoidable. Our President does not have a direct mandate and the composition of the Parliament may not really reflect the people’s voice with the dawn of the completely new sociopolitical environment.

This was one reason the discussion of a common minimum programme was floated by concerned individuals and professionals, but it appears that this too has been discarded, with everyone slowly turning their attention to the election cycle. The calibre of our politicians is too inferior for them to understand the dynamics involved and to come up with responsive and novel policies and political options.

We are now in a stalemate, with a lot of short-term distractions. In such situations, we become distracted and waste our time on non-value adding activities without realising the massive deterioration of the quality of life. A deeper analysis shows that while the absence of economic reforms is a major issue, the fragility of our institutions is a bigger concern, with the institutional capability for the functioning of a basic society being almost nonexistent.

Solutions

Appointing capable and credible human resources for debt negotiations with China is essential to avoid delays. Acceleration of debt restructuring will unblock many other barricades, enabling us to move forward. There is a huge vacuum of capable human resources needed to carry out reforms. Therefore, providing space for already appointed committees to recruit more capable people and working out a time-bound solution matrix is important. The solution now lies in setting up institutions that can execute reforms to get us the required results.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Restructuring SriLankan Airlines can help reduce our economic woes

Originally appeared on The Morning

By Anuka Ratnayake

There is much discussion on the precarious financial situation of the island’s National Carrier SriLankan Airlines. A month ago, Minister of Ports, Shipping, and Aviation Nimal Siripala de Silva revealed that “The only way to rescue the National Carrier is via urgent restructuring” [1].
The airline has racked up significant losses while its debt obligations have increased significantly with the depreciation of the currency. Getting rid of the airline will allow the Government to focus on its limited resources to strengthen social security nets and improve social infrastructure.
The argument regarding the airline has been muddied by emotion, for it is ultimately the people who pay for it and who have the right to ask if this is the best use of taxpayers’ money.
SriLankan Airlines’ Annual Report for 2020/’21 (latest available annual report) provides that the SriLankan Airlines Group recorded a loss of Rs. 49.7 billion. However, the Ministry of Finance in its latest Annual Report records that the loss (before tax) of SriLankan Airlines for the year 2021/’22 is Rs. 170.8 billion [2]. The accumulated loss amounts to Rs. 542.5 billion as at 31 March 2022. The National Carrier lost Rs. 248.4 billion in the first four months of 2022 due to the volatility in exchange rates [3].
The airline is in debt to the Bank of Ceylon and the People’s Bank to the tune of $ 380 million in 2022, while another $ 80 million loan has been obtained from the Bank of Ceylon by mortgaging shares of SriLankan Catering. The banks have extended support to the airline on the basis of letters of comfort issued by the Ministry of Finance.

Further, the airline has a debt payable on an international bond on a Government guarantee of $ 175 million. The guarantees extended by the Government to banks and bondholders represent additional potential losses of public funds. The group owes an arrears amount of $ 325 million to State-Owned Enterprises (SOEs) such as the Ceylon Petroleum Corporation (CPC), the Airport and Aviation Services (Sri Lanka) (AASL), and the Civil Aviation Authority of Sri Lanka (CAASL) [4].
The group’s current liabilities exceeded its current assets by Rs. 214.6 billion by 31 March 2021 and the total equity of the company as at reporting date has declined to a negative Rs. 281.5 billion.
The Auditor General’s report has continuously warned the company that “a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern” [5]. The Auditor General has relied on the Cabinet approval dated 7 February 2022 and the letter issued by the Secretary to the Treasury on 24 February 2022 confirming the support of the Government to the company to continue its operations as a “going concern”. In simpler terms, the SriLankan Airlines Group is technically insolvent and it continues to operate using taxpayer money.
The airline last reported a profit in 2008, under the management of Emirates. It has failed to report a profit in any year since then. The airline industry is known to be a high-risk, low profitability business.

Future losses and lessons learnt from India

The International Monetary Fund (IMF) has now reached a Staff-Level Agreement (SLA) with Sri Lanka to assist its economic recovery process. It was agreed that the IMF would provide an Extended Fund Facility (EFF) of $ 2.9 billion on a 48-month arrangement.
The total debt of SriLankan Airlines (just over $ 1 billion) is nearly one-third of the EFF. Sustaining further losses is an impossible task since the Government can no longer fund the airline. Covering future losses of the airline through tax increases is unacceptable given the dire economic conditions faced by the public.
Sri Lanka needs air connectivity, but this is best provided by privatising air services and not by operating an airline. A good example is the Air India privatisation which took place in the past year. The Indian National Carrier was sold to the Tata Group for the relatively small sum of INR 180 billion [6]. Prior to the sale of the airline, it was losing $ 3 million a day on average, which totaled to over $ 1 billion per year [7].
The rising aviation fuel prices and airport usage charges were not sustainable after the pandemic restricted air travel. Further, competition from low-cost carriers and the poor financial performance of the airline made things worse. Air India’s poor client orientation, lack of punctuality, obsolete productivity practises, and poor revenue generation techniques were among the reasons for its incompetency [8].
The impact of the Air India privatisation was discussed at a panel at the ReformNow Conference hosted by the Advocata Institute. The panellists stressed how the Tata Group had already begun the process of value addition through efficient customer care services, improving fleet productivity, and focusing on budget flights for the domestic market.

Aviation hub

Singapore’s aviation policy has been a key factor in the growth of Singapore’s Changi International Airport, where air transport contributed to nearly $ 20 billion of value added to the Singapore economy or about 6% of the Singapore GDP in 2011.
There is much public support for restructuring SriLankan Airlines due to its heavy burden on State coffers and thereby the taxpayers. However, rather than selling the airline alone, bundling the sale of the airline with the other business units such as SriLankan Catering and SriLankan Airlines Ground Handling would be attractive to investors. At the same time, the airport too can be included and marketed as an aviation package with a similar potential to the Changi International Airport.
A national carrier is a source of pride, but it is not a priority for a cash-strapped Government. The airline should be disposed of or even closed, and a liberal air services policy should be adopted instead.
This could boost growth and truly turn Sri Lanka into an aviation hub, freeing taxpayers’ money to be used for health, education, and other priorities.

References
1. https://www.ft.lk/top-story/Answering-aviation-Aragalaya/26-739243
2. https://www.treasury.gov.lk/api/file/a7a35d1a-556f-49b2-81e0-20294eb5a519
3. https://www.treasury.gov.lk/api/file/bc1e8eaf-91eb-4cb3-94e0-35d81f65a949
4. https://www.ft.lk/top-story/Answering-aviation-Aragalaya/26-739243
5. https://www.srilankan.com/pdf/annual-report/SriLankan_Airlines_Annual_Report_2020-21_English.pdf
6. https://www.indiatoday.in/business/story/explained-air-india-handover-government-to-tata-group-changes-1904217-2022-01-25
7. https://www.advocata.org/commentary-archives/2021/10/11/air-india-sold-privatise-srilankan-now
8. https://www.bbc.com/news/world-asia-india-60150531

Anuka Ratnayake is a Research Assistant at the Advocata Institute. She can be contacted at anuka.advocata@gmail.com. The Advocata Institute is an Independent Public Policy Think Tank. The opinions expressed are the authors’ own views. They may not necessarily reflect the views of the Advocata Institute.

One-size-fits-all reform strategy will not work

Originally appeared on The Morning.

By Dhananath Fernando

It is said that there are three kinds of people: those who watch things happen, those who make things happen, and those who wonder what happened. Sri Lanka’s economic crisis and its story of reforms is undeniably a case of the latter.

Unfortunately, our key institutions and the Government authorities who are currently in the driving seat fall into a new category called ‘those who wonder what happened, but frankly just don’t care’. 

A good example is the recent discussion on the validity of the debt servicing suspension announcement. Since Parliament has the power to approve all public finance decisions, questions have been raised as to how such an important decision, which was made for the first time in the history of Sri Lanka, was not tabled before Parliament for approval.  

Of course, if we had enough money and if our State coffers held a reasonable amount of foreign reserves, we wouldn’t have needed to skip debt servicing or suspend debt repayments, and this would not have been an issue. However, it is no secret that the country did not even have enough funds to clear a shipment of LP Gas worth $ 20-30 million. The phrase ‘scraping the bottom of the barrel’ is not appropriate in this instance, because there is simply nothing at the bottom. 

Warnings fell on deaf ears

There were multiple alerts on Sri Lanka’s debt sustainability issued by local intellectuals as well as by common men and women. Global banks such as Citibank even issued a report titled ‘Denial is not a strategy’. But their warnings fell on deaf ears as our Parliament and Central Bank did next to nothing to remedy the situation. 

Months after suspending debt payments, Parliament is now questioning whether the debt suspension decision had been approved by them. Instead, they should be asking themselves what they were doing for so long when it was obvious that we did not have money to pay our debt. 

When the country was heading straight towards bankruptcy, many policymakers did not bother to question what was happening. This does not justify the failure to follow parliamentary protocol, of course, but two wrongs will not make a right. 

In desperate need of reforms

The current system is a clear indication that our institutions are in desperate need of a complete reform programme, one that includes political reforms. However, expecting reforms to be implemented by a set of policymakers who, up until very recently, did not even bother to question what was happening may be too high an expectation. 

The execution of a solid reform programme requires building upon an understanding of what these reforms should be as well as understanding the importance of laying the foundations for strong, independent institutions. Along with specialist skills, a commitment to seeing these reforms through is required. Political reforms should support economic reforms and vice versa.

SOEs as a starting point

A good starting point is reforming State-Owned Enterprises (SOE). It is quite surprising to me that the International Monetary Fund (IMF) press release on the Staff-Level Agreement (SLA) gives little significance to SOE reforms. 

One of the seven main points highlighted by the IMF and the Government is the need for cost reflective pricing for energy and petroleum products. This is a welcome move, but it will lead to the same problems we have been facing so far. 

Given the state of our institutions, our politicians will adopt the cost reflective pricing strategy for as long as is needed and then simply revert back to their old habits – changing the pricing formula, bringing  prices down, and ignoring the cost factor. For this reason, our reforms have to be of a much more permanent nature this time around and that is why we need a strong combination of specialist skills and a commitment to implementing these reforms. 

The role of the Government

The Government’s role is not to conduct business, and a private sector business leader recently said as much: “The Government’s only business is to not to do business.” Simply looking at which enterprises make profits or incur losses is definitely the wrong way to look at it.  

Government businesses that make profits at present can incur losses in future. The Government has the ability to destroy any notion of a level playing field and can support Government businesses through loans, subsidies, and special permits. The vast majority of profit-making SOEs are not profitable solely due to their own efforts, and in reality, they aren’t competitive businesses.

For instance, it is widely known that the Development Lotteries Board is a profit-making Government institution. What may be a lesser known fact is that there is only one other competitor – the National Lotteries Board, and the directors of both these companies are appointed by the Minister of Finance. Under these circumstances, it can hardly be a surprise that the Development Lotteries Board is profitable. 

Therefore, looking solely at profitability won’t address prevailing issues. We have to first look at what the role of the Government should be. 

It is true that all SOE reforms cannot adopt a one-size-fits-all strategy. Different SOEs have to be treated differently. This treatment has to be based on the principle of the government having no role in business.  

In cricket and football, it is a commonly held view that the umpire or referee has no role in playing the game. It is the umpire’s responsibility to overlook the game and ensure that it is being played fairly. The umpire’s decision is final and if the umpire acts more favourably towards one side, there is another set of regulation mechanisms to manage this. The umpire facilitates the competitive nature of the game. The same holds true for the role of the government. 

Many options have been discussed for reforming SOEs, including privatisation and SOE consolidation that follows models like the Temasek in Singapore and Khazanah in Malaysia. Regardless of which option is chosen and which model is followed, we expect the Government to implement SOE reforms on a case-by-case basis, with special attention being paid to the role of the State.  

If we fail to understand the role of the State and implement solutions for SOEs based on this, Sri Lanka’s reform programme will probably fall into the category of things that make people ‘wonder what happened’. People will certainly question the reform programme and its credibility, while our next generation will wonder how they inherited such a poorly-managed nation that was once so full of potential.  

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.