Media Coverage on IMF & The Urgency of State-Owned Enterprise Reforms

Sri Lanka SOE accumulated losses equal 18 times PAYE taxes: Advocata

Sri Lanka’s state owned enterprises ratcheted up losses amounting to 18 times the annual pay as you earn taxes collected from wage earners, since privatisation was halted, a think tank has said.

When state enterprises ran losses they were covered by loans taken from domestic banks as well as from capital markets.

“From 2005 to 2021, roughtly over 15 years, state enterprises have accumulated losses of 1.8 trillion rupees,” said Dhananath Fernando, Chief Executive of Advocata Institute told reporters in Colombo.
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ITN News Live IMF & The Urgency for State-Owned Enterprise Reforms

The video can be found here from the ITN Live News segment (2023-10-10| 06.30 PM)

Sri Lanka should speed up SOE sales before momentum dies: think tank

Sri Lanka should speed up the divestment of state enterprises to reduce the burden on the people, before the momentum for reform out, Advocata Institute, a Colombo-based think tank said.

Key reforms have to be done in the first year of government, Rohan Samarajiva, an Advisor to Advocata Institute told reporters.

“2024 by all estimates will be an election year,” Samarajiva, who had been involved in government reforms earlier said.

“I would generally argue that is not the opportune time for this kind of reforms.”

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Failed SOEs account to Rs. 1.5 Tn accumulated losses

Debt owed by public corporations up to 2021 amounts to Rs 1.8 Tn:

The failures of State Owned Enterprises (SOE) are creating a huge financial burden to the country; their losses have resulted in a staggering Rs. 1.5 trillion accumulated losses from 2006 to 2021.

In addition debt owed by public corporations up to 2021 was Rs 1.8 trillion which is a 9.4% of public debt, said Research Analyst Advocata Institute Rehana Thohwfeek at a special event yesterday on SOE’s. She explained that the country expected to generate around Rs. 100 billion from PAYE Tax and if one compares the losses of SOE’s and their debt it paints a very sad story.

She also said by providing subsidies by State institutions like Petroleum Corporations for Kerosene due to political and union pressures the CPA lost rupees billions.

Though SOE’s are marketed as national assets they are actually a vehicle for corruption,” accused Chief Executive Officer of Advocata, Dhananath Fernando.

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SOE restructuring delays seen as discouraging prospective investors

The restructuring of State Owned of Enterprises (SOE) is being delayed day- by –day, resulting in an uncertain situation where prospective investors will also tend to think twice before investing in Sri Lanka, Advisor, Advocata Institute Prof Rohan Samarajiva said.

“Although certain trade unions say that Sri Lankan Airlines, CPC, CEB, Water Supply and Drainage Board and other state owned enterprises are making profits, there are various issues in their accounting system. They are actually incurring losses because some of their debts and the relevant interests are borne by the Treasury, Prof. Samarajiva said at a forum organized by Advocate Institute on the topic, ‘IMF and the Urgency for State – Owned Enterprises Reforms’. The event was held at BMICH on Tuesday.

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The Urgency for Restructuring State-Owned Enterprises in Sri Lanka

The restructuring of State-Owned Enterprises (SOEs) in Sri Lanka has been facing significant delays, leading to an uncertain environment that may deter potential investors. According to Prof Rohan Samarajiva, Advisor at the Advocata Institute, although some trade unions argue that certain SOEs are profitable, there are issues with their accounting system. Many of these enterprises are actually incurring losses because their debts and interests are being bornethe Treasury.

The interim budget in August 2022 had specifically mentioned the restructuring of various SOEs, including Sri Lankan Airlines, Ceylon Petroleum Corporation (CPC), Ceylon Electricity Board (CEB), and Hilton Hotel, among others. However, despite 14 months passing, no progress has been made in restructuring these entities.

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IMF & The Urgency of State-Owned Enterprise Reforms

In the wake of Sri Lanka's economic challenges, it is undeniable that State Owned Enterprises (SOEs) have had a substantial impact on the country's fiscal health. They squander resources, land, labour, and add to the debt burden. They monopolize markets limiting competitiveness and contribute to the inefficiency in the economy. At this economic juncture, the necessity for SOE reforms is not just a matter of economic prudence; it is a matter of national importance. Without swift and comprehensive SOE reforms, we risk prolonging our current economic downturn.

The Advocata Institute hosted a press briefing on IMF & The Urgency of State-Owned Enterprises Reforms, to create further awareness and public debate on the urgency of implementing reforms to State Owned Enterprises (SOE’s). This Press Brief was held at BMICH, Tulip Hall on October 10.

The Event commenced with a 15 minute presentation by Rehana Thowfeek, Research Associate at the Advocata Institute analysing the issues surrounding SOE’s and their link to broader macroeconomic issues. Following this, there will be introductory remarks by the main speakers for the evening:

• Professor Rohan Samarajiva - Advisor, Advocata Institute.

• Mr. Dhananath Fernando - Chief Executive Officer, Advocata Institute.

• Mr. Ravi Rathnasabapathy - Independent Consultant

The Presentation by Rehana Thowfeek can be found here

The Full video of the briefing can be found here

#ReformNow Conference: Let's Reset Sri Lanka

Sri Lanka is in the midst of its worst economic crisis since independence. Advocata Institute organised Sri Lanka’s first ever reset economic conference prioritizing economic recovery and growth. You can now watch these conferences once again on the Advocata Youtube channel and Advocata+ Youtube Channel.

Sessions of the conference were live-streamed on 05th and 06th August 2022 on the Advocata Institute Facebook page!

During the conference Advocata Institute launched it latest report and a policy product tracking the performance of State Owned Enterprises

To access the the platform and report visit https://soe.lk/

This report can be accessed below.

The State of State Owned Enterprises in Sri Lanka

Watch the full sessions on our YouTube channel

You can access the presentation from our sessions below:

Debt Crisis, Structural Adjustment and Trade Policy by Prof Prema-chandra Athukorale

Centralizing the State's Ownership Function by Daniel Alphonsus

State of State-Owned Enterprises by Ravi Rathnasabapathy

Air India Privatisation Story – takeaways for Sri Lanka by Thilan Wijesinghe

Taxation, Stability and Growth by Dr. Roshan Perera

Taxation, Stability and Growth by Prof. Mick Moore

Resetting Samurdhi -Social Safety Nets by Dr Stephen Kidd

Resetting Samurdhi - Social Safety Nets by Ms Gayani Hurulle

Context setting - Labour market Presentation by Udahirini

Labour market reforms for more inclusive growth by Ms Shyamali Ranaraja

Unlocking Land for development – Current Land Utilisation by Migara Rodrigo

Unlocking urban potential by Mr Nayana Mawilmada

Agricultural land by Dr Roshan Rajadurai

The Case For Private Industrial Zones – Lessons From The Dominican Republic by Mr Juan Jimenez

#ReformNow # Let’sResetSriLanka

Day 01 - August 05th

Day 02 - August 06th

"Urgency of State Owned Enterprise Reforms"

The Advocata Institute hosted a press brief on the '"Urgency of State Owned Enterprise Reforms" with Advocata’s Academic Chair Dr. Sarath Rajapatirana, Advocata’s Advisors Professor Rohan Samarajiva and Ms. Anarkali Moonesinghe on December 09th at 2.00PM.

The event commenced with a 10-min presentation, analysing the performance of key State Owned Enterprises. Followed by statements made by Dr. Sarath Rajapatirana, Professor Rohan Samarajiva and Anarkali Moonesinghe on the need for SOE reforms, before opening the floor for a question and answer session with journalists and media.

The event was moderated by K D Vimanga and Sathya Karunarathne.

The presentation by KD Vimanga on "Urgency of State Owned Enterprise Reforms" can be accessed below.

Urgency of State Owned Enterprise Reforms Presentation

Watch the discussion on Advocata Institutes YouTube channel. 

Advocata on Public Savings and Investments

Dhananath Fernando, Chief Operating Officer of the Advocata Institute was featured in the News1st English Prime Time Bulletin that was aired on the 16th of September at 9.00 PM. Dhananath comments on how trust is important when it comes to investment. He also mentions that when it comes to the savings in banks, the public is skewed to State-owned banks due to the perception that the government will intervene and rescue if a problem arises.

ශ්‍රී ලංකාවේ රජය සතු ව්‍යවසායන් 2019 දී අඛණ්ඩව විශාල පාඩු විඳිමින් සිටී

රජයට අයිති ව්‍යාපාරය ලබන සම්පූර්ණ පාඩුව සෙවීමට  කලින් රජයට ව්‍යාපාර කීයක් අයිතිද කියා සොයා බලා ලයිස්තුවක් සෑදිය යුතුයි. 

නැරඹීමට මෙතන ක්ලික් කරන්න

State-Owned Enterprises in Sri Lanka continue to suffer massive losses in 2019

Aneetha Warusavitarana, Research Manager of the Advocata Institute was featured in the News1st English Prime Time Bulletin that was aired on the 26th of June at 9.00 PM. Discussing the loss-making SOEs Aneetha recommended reforms which include compiling a comprehensive list of all State-Owned entities, an ongoing monitoring setup with a clear framework to track Key Performance Indicators in line with the OECD’s guidelines on corporate governance of state enterprises and strengthening the Parliamentary Committee on public accounts, and the Parliamentary Committee on public enterprises to improve accountability within the system

“In 2019 the total losses sustained by the key 52 state entities amounted to rupees 151 billion, with budgetary support amounting to 49 billion. Of this 49 billion budgetary support, 20 billion was allocated for recurrent expenditures on salaries and overhead costs. The key reason for these losses is the lack of oversight and governance structures in state enterprises” 

Click here to watch

Survey reveals that 81% of Sri Lankans claim that state enterprises do not provide enough services to justify losses

Advocata Research Analyst, Aneetha Warusavitarana was featured on News 1st’s Prime Time English News where she explained the findings of Advocata’s latest public opinion poll on State Owned Enterprises.

855 respondents across 8 provinces were asked the question “Do you think the losses sustained by state enterprises are justified given the services they provide?” To which, 81% answered “No”.

Ability of Parliamentary Committees questionable – Advocata

Republic Next mentioned Advocata in a recent article on misgovernance of SOEs in Sri Lanka.

The Advocata Institute, a Colombo-based think tank, is questioning the ability of various oversight committees set up by Parliament to look into governance issues in Sri Lanka.

The report, which looks at the State Owned Enterprises (SOEs), is highly critical of these institutions that are draining the Treasury of billions of rupees each year.

Advocata says the way Members of Parliament are elected is an issue. MPs align with wealthy election backers who provide campaign support in return for political protection or rewards. Thus, those elected are politicians with “access to cash and manpower – not intellect or ability.”

Although politicians will pursue their own interests, an effective governance system should apply the brakes on the worst of those impulses. Parliament, through the aforementioned committees, should be doing this, but is seriously underperforming, the report says.

Although Parliamentary Committees such as the Committee on Public Enterprise (COPE) and the Committee on Public Accounts (COPA) conducted investigations that shed light on important issues – including the much talked about Bonds Scam – Advocata says these committees could do more to scrutinise public funds. These committees do not appear to have sufficient expertise to make concrete recommendations to right the wrongs in Government.

The report notes that “serious deficiencies exist.” With the current political uncertainty, it says that “engineering crossovers in return for political office reduces parliament to a rubber stamp and the committee system is weak.” The report commends the current government for the major overhaul of the committee structure, which it says makes them “much better geared to scrutiny and accountability.”

Structures aside, the report says that the performance of these committees depends on the calibre of the MPs.

Advocata recommends that experts who are not MPs be added to these committees so that they could function better. “Unfortunately, it does not seem as if we have the necessary quality of MPs in sufficient numbers to make the reformed system perform. Aside from capacity, there is little incentive for MPs to take committee work or parliament seriously. Many don’t even attend,” it says. Publicly available information shows that less than half the MPs attended at least 75% of the sessions. Even those who attended remained in the house only for the first hour.

Advocata also found that “COPA/COPE are under-resourced; their reports complain of a lack staff (particularly audit) and proper IT systems. Further, the government is not required to respond to the recommendations of these committees within any stipulated period of time, leaving the accountability loop open.” Advocata also adds its voice to the clamour to make the COPA and COPE hearings open to the media.

The picture that emerges from the Advocata report is bleak. It concludes that the “political process incentivises corruption. A weak governance regime means there is little accountability and few checks on government spending. In addition, limited technical capacity means policy is open to “capture” by special interests. The combination is deeply dysfunctional: a parasitic system that transfers wealth to the politically connected through corruption and rent-seeking.”

Download full report: https://www.advocata.org/state-enterprise-srilanka

Corruption and patronage culture rampant

Republic Next mentioned Advocata in a recent article on misgovernance of SOEs in Sri Lanka.

State Owned Enterprises (SOEs), which have cost the state mammoth amounts of state funds over the past few decades, are victims of a patronage culture fostered by corrupt politicians, says a new report on the state of these organisations released by Colombo-based think tank Advocata.

The report quotes Finance Ministry Secretary Dr R.H.S. Samaratunga as saying that successive Sri Lankan governments have pumped a colossal Rs.1, 150 billion into the upkeep of these SOEs up to 2017.

This is money that could have been spent on developing schools and hospitals as well as maintaining much-needed infrastructure.

The report says that lifting limits on political campaign spending and abolishing transparency of those money trails in 1978 opened the floodgates of corruption.

The report points out that “wealthy backers, some connected to the underworld, provide labour and fund campaigns in return for political protection or rewards.” Because of this culture, the people who end up getting elected to office are those with “access to cash and manpower – not intellect or ability.”

Naturally, this means that the state’s technical capacity to formulate policy and implement them are insufficient. The report notes that “the concept of independent policy analysis does not exist, leaving a vacuum vulnerable to capture by special interest groups.”

After the Member is elected, they try to recover their “investment” in the political venture or start building up a war chest to be re-elected. He or she also has to provide jobs and wherewithal to their supporters and for this, SOEs provide opportunities for the politicians to stuff these enterprises with staff that exceed requirements. In one egregious incident, the State Engineering Corporation recruited a mind-blowing 451 persons to fill 41 vacancies in December 2015. That is more than ten times the required number of persons, according to inquiries conducted by Parliament’s Committee on Public Enterprise (COPE).

The reason why the SOEs are a soft target for the corrupt is weak governance practices, the Advocata report says.

The report suggests that adopting “comprehensive corporate governance practices is a route that many countries have taken to strengthen the accountability of SOEs. These governance practices strengthen the governing bodies that oversee and control (shareholders or owner meetings, board and management, internal monitoring structures), define clear rules of engagement between the different actors, and increase transparency and accountability towards the stakeholders.”

Download full report: https://www.advocata.org/state-enterprise-srilanka

Ignorance and corruption bedevils state enterprises

Republic Next mentioned Advocata in a recent article on misgovernance of SOEs in Sri Lanka.

The Sri Lankan state does not know how many enterprises it runs, reveals a report on State Owned Enterprises (SOEs) released by the Colombo-based think tank Advocata.

Titled “Sri Lanka’s state-owned enterprises Systemic Misgovernance: A discussion”, the report delves into the state of these organisations and proposes policy reforms to improve governance.

In the foreword, the researchers point out that a “major roadblock identified in the report is the lack of an official, all-encompassing list of SOEs, their subsidiaries and sub-subsidiaries. The Advocata Institute has found references to over 400 SOEs, but this cannot be verified against any government source.” The Department of Public Enterprise has the most comprehensive list, consisting only 127 SOEs. Some 50 of these SOEs are considered “strategic” and are closely monitored by the Treasury.

The report also found that enumerating SOEs was problematic and says “this problem is compounded by the fact that the government has a very loose definition of SOEs. To address the problem, this report provides a working definition of what an SOE is, for the sake of clarity.”

The report goes on to explore the structural issues at the core of Sri Lankan SOEs. Elaborating on these issues, the report illustrates how structural issues lead to poor governance, which allows SOEs to continue to function as loss-making entities.

The report points out that unlike private enterprises, SOEs are run with taxpayer money and when they incur losses, the Government – or in effect the taxpayer – has to pay for it. Because of this, SOEs are a drain on the Treasury.

Mismanagement and outright looting bedevils these enterprises as they are crammed with workers who are supporters of politicians and not staffed with professionals who could make them efficient and profitable, the report finds.

“SOEs are ultimately owned by citizens but run by managers who are controlled by politicians. Politicians determine or otherwise influence the appointment of key management and must hold the managers accountable”, the report adds.

The report compares SOEs to private sector companies, where shareholders have invested their own money in a venture. “Unlike shareholders, the politicians have not invested their money in the business. As they have no stake, there is no particular interest in ensuring it is well run. However, politicians do have incentives to direct SOEs to achieve economically inefficient objectives for political purposes, giving rise to political costs. These may be benign if policies enhance social welfare at the cost of shareholder value. However, more often than not, they are malign and favour political allies at the expense of public welfare”, it points out.

Download full report: https://www.advocata.org/state-enterprise-srilanka

What is the state of Sri Lanka's state enterprises?

Sri Lanka has a total of 527 State Owned Enterprises out of which regular information is only available for 55. These SOE's accumulate billions of losses annually due to sheer mismanagement. The precedence of corruption in the highly bureaucratic systems that govern SOEs are also a case for alarm. What is the state of our state owned enterprises?

At this year's Asia Liberty Forum, 2019, we are explored this topic in a discussion and public talk by Ravi Ratnasabapathy, Suresh Shah, Thilan Wijesinghe and Dr. Malathy Knight; moderated by Dr. Nishan de Mel.

Report out now: https://goo.gl/XogBvY

Should we privatise State Owned Enterprises?

Advocata Resident Fellow at the Advocata Institute,  Ravi ratnasabapathy appeared on the nationally televised Face the Nation to speak about reforming State Owned Enterprises in Sri Lanka and particularly the fate of the troubled SriLankan Airlines.