Advocata SOE Briefing Note : Getting the State Out of Business: The Compelling Case for Privatisation of State-Owned Businesse

Sri Lanka's state-owned enterprises (SOEs) are a major hindrance to the country’s economic prosperity. The state's footprints extend across all major industries - telecommunications, banking, ports, petroleum, and power generation. With over 400 SOEs spread across 33 sectors and employing roughly 250,000 workers, they form an inefficient, bloated bureaucracy. The IMF's Governance Diagnostic Assessment flags SOEs as being high-risk for corruption, plagued by weak management, shoddy oversight, rigged procurement processes, political interference, and a lack of transparency. Sri Lanka cannot afford the status quo. Decisive action to privatise SOEs is essential to break free from the cycle of inefficiency and corruption, and unlock sustainable economic growth.

Here is the link to the Advocata SOE Briefing Note in English on

Getting the State Out of Business: The Compelling Case for Privatisation of State-Owned Businesses

Here is the link to the Advocata SOE Briefing Note in Sinhala

Here is the link to the Advocata SOE Briefing Note in Tamil

THE STATE OF STATE ENTERPRISES IN SRI LANKA – 2022

As a group, these SOEs have suffered large losses that have contributed to the present macroeconomic problems facing the country. The state has to make good on these losses, increasing public deficits that have to be financed by borrowing from the Central Bank, has exacerbated this issue further, which has brought high inflationary pressures into the economy. Losses of these enterprises contribute to macroeconomic instability given the perilous state of our overall finances. The Ceylon Petroleum Corporation, Ceylon Electricity Board and SriLankan Airlines need immediate reform or sale to a private party to arrest the growing magnitude of this problem. Previous attempts to address this problem have attracted controversy. Our general population is not prepared to allow disposal of enterprises despite their record of making large losses year after year. Apart from the macroeconomic problem, the country has a large productivity and efficiency problem that requires more resources to keep growing even at the same rate given that productivity and efficiency issues have not been addressed adequately.

Advocata's 2022 Report "State of State Owned Enterprises 2022 " is a deep dive on the impact of State Owned Enterprises, on Sri Lanka's economy.

Advocata Policy Brief : Minimum Room Rates

The proposed minimum room rates seek to place a rate of USD 100 on 5 star hotels, USD 75 for 4 star hotels, USD 50 for 3 star hotels, USD 35 for 2 star hotels, and USD 20 for 1 star hotels within the city of Colombo, effective from October 1, 2023. This will, in effect, act as a price control, ensuring that hotels within these star classifications located within the city of Colombo cannot price their rooms at rates lower than those prescribed by the government. The below policy brief will explore the dynamics of the hotel industry and provide a critical analysis of the potential consequences and challenges of implementing this scheme. By critically evaluating these effects, we aim to provide policymakers and stakeholders with a holistic perspective to inform their decisions.

Here is a link to Advocata’s Policy Brief on Sri Lanka’s Minimum Room Rates

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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Media Coverage on #ReformNow Conference: Let's Reset Sri Lanka

Let us focus on global changes immediately - President

We can’t use the old economic model further:

We can no longer use the old economic model and we must pay attention to global changes by thinking innovatively, said President Ranil Wickremesinghe yesterday. He was delivering the keynote address at the professional forum to launch the Advocata Institute’s research report on Sri Lanka’s economic reforms held at the Bandaranaike International Conference Hall in Colombo yesterday (05).

The conference organised by the Advocata Institute under the theme “LET’S RESET SRI LANKA” is held on August 5 and 6 at the Lotus Hall of the Bandaranaike International Conference Hall.

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President reiterates, difficult times ahead

President Ranil Wickremesinghe says Sri Lanka has '6 difficult months ahead' as the island nation attempts to stabilize the economy through agreements with the IMF.

Speaking at a forum organized by the Advocata Institute in Colombo today (05), President Wickremesinghe said that the 'way out' for the country is through the agreements reached with the IMF.

"Although people talk of alternative measures, they have not worked out," the President said, emphasizing that first and foremost, Sri Lanka has to enter into the standby agreement, with the staff level agreement with IMF.

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Sri Lanka President hints on possible wealth tax for economic, social stability

Amid widening gap between the rich and the poor in Sri Lanka, the island nation will have to go for higher taxation including on wealth, President Ranil Wickremesinghe said on Friday while delivering a keynote speech at an economic forum.

The crisis-hit country is struggling with lower state revenue and higher government expenditure with 86 cents of each rupee of tax revenue spent on state sector wages and pensions.

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Sri Lanka President hints on possible wealth tax for economic, social stability

Amid widening gap between the rich and the poor in Sri Lanka, the island nation will have to go for higher taxation including on wealth, President Ranil Wickremesinghe said on Friday while delivering a keynote speech at an economic forum.

The crisis-hit country is struggling with lower state revenue and higher government expenditure with 86 cents of each rupee of tax revenue spent on state sector wages and pensions.

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SL must focus on higher revenue mobilisation to overcome crisis

Sri Lanka still has scope to overcome the macroeconomic instability if the Government could focus on revenue mobilisation through inclusive tax reforms based on scientific analysis, Advocata Institute Senior Research Fellow Dr. Roshan Perera opined.

Speaking at the ‘Let’s reset Sri Lanka’ forum organised by the Advocata Institute recently, she underscored that the root cause of the existing macroeconomic instability was due to lack of fiscal discipline.

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The old economic model is no longer viable, IMF proposals must be implemented - President

President Ranil Wickremesinghe says the old economic model can no longer be implemented adding that innovative thinking is required while paying attention to global changes.

Delivering the guest speech at a conference today (05) Mr. Wickramasinghe said proposals of the International Monetary Fund (IMF) must be implemented to recover from the economic crisis the country is facing, regardless of whether they are good or bad, and regardless of who likes them or not.

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‘National carrier matters, but profitability matters more’

Delaying the privatisation of SriLankan Airlines will not help, however the steps towards privatisation of the national carrier should be taken in consultation with international experts who understand the aviation industry, Thilan Wijesinghe, Chairman and CEO of TWCorp (Pvt) Ltd., said at ‘Let’s Reset Sri Lanka –Reform Now’ conference hosted by Advocate Institute, recently.Thilan who is knowledgeable about many aspects of SriLankan Airlines’ operational outlook said so responding to a query on how debt-laden SriLankan Airlines can attract potential buyers to push a privatisation process forward.

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IMF, a starting point in path to recovery - President

Advocata Institute hosted its economic reform conference, #ReformNow last week. The two day event discussed the economic reforms needed to recover from the current crisis and promote growth.

The event brought together policymakers, l internationally recognised thought-leaders, the business community, civil society and citizens of Sri Lanka to facilitate this much needed discussion. The sessions focused on themes such as reforming taxation, state-owned enterprises, social safety nets , trade policy and land policy.

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‘Only 15 out of 40 employment laws in regular use’

Sri Lanka has over 40 laws that relate to employment, of which only about 15 are in regular use.

Most are dated before independence or shortly thereafter and many are outdated, Shyamali Ranarajah- Attorney at law (Pictured) said.

Sri Lanka’s labour reforms must be led by the highest level of government whilst stakeholders must have a seat at the discussions for labour reforms.

Moreover, Ranarajah said dispute resolution mechanisms must be made efficient, productive and must not become a barrier or a hindrance to growth and employment creation, she opined.

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South Asia can have integration in dancing & cooking, but not trade, quips Prez RW

Strengthening trade relations with the world is essential for countries to fulfil their economic aspirations, however, efforts will have to be made by individual countries to strengthen ties as within the South Asian region and trade integration will not happen, said President Ranil Wickremesinghe. “There will have to be bilateral agreements with whoever we want. There is too much politics involved for there to be a regional trade agreement in South Asia,” the President told a fully-packed audience at the ‘Reform Now’ conference hosted by Colombo-based economic thinktank Advocata Institute.

“So we can keep that aside. We can have integration in dancing, we can have integration in cooking. but certainly, we are not going to have integration as far as the economy is concerned,” Wickremesinghe quipped.

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CSE seen as being controlled by a few people; ‘not a proper platform to list SOEs’

The CSE is not a proper platform to list state owned enterprises because it’s being controlled and dominated by a few people or small groups of them. It cannot be a match for leading stock markets like the London Stock Market because it doesn’t reflect a broader perspective, President Ranil Wickremesinghe said.

“Either you must change or bring into being a new organization to broad base the stakeholder participation level without allowing a small set of people to control it, Wickremesinghe told an economic forum which was organized by the Advocata Institute and held at the BMICH yesterday.

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‘Negotiations with China needed as well to evolve sustainable debt restructuring proposal’

Sri Lanka’s debt advisors are currently looking at local debt, as a restructuring plan to negotiate with our creditors is being developed as part of efforts to make debt sustainable in order to obtain support from the IMF. The latter has specifically told us to bring a sustainable debt restructuring proposal through negotiations with China as well, President Ranil Wickremesinghe said.

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Media coverage on " A National Consensus for the Economy"

Privatise SriLankan - Prof. Samarajiwa

The Government should privatise national carrier SriLankan Airlines and save millions of rupees that is being daily wasted to keep the airline, said founding Chair of LIRNEasia, Prof. Rohan Samarajiwa at the Advocata Institute organized building political consensus for economic reforms event at BMICH on Wednesday.

He said that if the Indian government can privatise their national carrier Air India, the Sri Lanka government too could do it. He however said that like what the Indian government did the Sri Lankan government too would have to shoulder their burden of settling all the debt owed by the airline when it was privatised. “However even after doing this the Sri Lanka government would be able to save millions of rupees that is allocated to ‘up keep’ the airline.

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‘IMF bailout viable option for mounting debt repayment’

Whichever government is in power they would have to face the current dollar crunch, escalating global commodity prices, pandemic and most of the other current issues and one way out of this is to look for a IMF funding Chair of LIRNEasia, Prof. Rohan Samarajiwa at The Advocata Institute organized building political consensus for economic reforms event at BMICH on Wednesday.

He said that no institution has given loans to Sri Lanka by force but now the debt repayment is mounting and one viable option would be to look at the IMF for a bailout. He also said that the budget did have salient features and though not adequate to cut down the fuel allowance of the parliamentarians by 5 liters is a step taken in the right direction giving a positive message that polities too are taking some cost cutting measures. But the one off tax imposed on corporate is not a welcome move.”

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Prof. Samarajiva proposes Sri Lankan divest shares

LIRNEasia Founding Chair and Advocata Institute Advisor Prof. Rohan Samarajiva, during a recent event, suggested that the Government divest SriLankan Airlines on the same lines as Air India.

“The objective is to protect the taxpayers of this country from having to continually cover the losses of this technically bankrupt state-owned company,” he said, highlighting the importance of immediate measures to improve public finances.

The national carrier makes a daily loss of Rs. 129.03 million. In the last four years of operation, it has cost the economy Rs. 137 billion in the form of accumulated losses.

Prof. Samarajiva also stressed the importance of building a national consensus to implement immediate reforms to tackle a wide range of issues ranging from unsustainable debt to shortages of essential items in the country.

“We are no longer talking about a crisis that is about to engulf us. We are now in its midst, though not its depths. The hope that the 2022 Budget would give the right signals has evaporated,” he added.

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National consensus mooted to overcome potential sovereign default

A national consensus backed by a common minimum programme, which should be implemented by an independent team of experts, is mooted for Sri Lanka to overcome a potential sovereign default next year.

“As the Central Bank (CB) will be a focal point in this process, we need to transform the CB into a real independent and responsible entity, which can work with a national government. It should give priority to technical advices in its decision-making and it should not be an entity, which experiments different theories such as Modern Economic theory,” LIRNEasia Founding Chair Prof. Rohan Samarajiva told a forum organised by Colombo-based think tank Advocata Institute, under the theme ‘A National Consensus for Economy?’, in Colombo, on Wednesday.

In taking part in the panel discussion, ruling-collation MPs Prof. Ranjith Bandara and Dr. Suren Raghavan as well as opposition MPs Dr. Harsha de Silva, Patali Champika Ranawaka and Vijitha Herath, identified the need of a national consensus to overcome the looming crisis.

Ranawaka estimated Sri Lanka’s external debt repayment obligations at a minimum of US $ 3 billion, which include International Sovereign Bonds (ISB) and Sri Lanka Development Bonds (SLDB) for the next eight months, with only US $ 1.5 billion usable foreign exchange reserves in hand.

Sri Lanka has a US $ 500 million maturing ISB in January, next year and another US $ 1 billion maturing ISB in July next year.

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Call for consensus on structural reforms to get out of economic crisis

“We are no longer talking about a crisis that is about to engulf us. We are now in its midst, though not its depths. The hope that the 2022 Budget would give the right signals has evaporated,” Prof. Rohan Samarajiva, a leading policy analyst and an advisor of the Advocata Institute, said.

He made these comments at Advocata’s latest event, ‘A National Consensus for Economic Reforms or Arthikayata jathika sammuthiyak?’. Prof. Samarajiva provided a breakdown of severe economic and social challenges facing the country. His keynote speech stressed on the importance of building a national consensus to implement immediate reforms to tackle a wide range of issues ranging from unsustainable debt to shortages of essential items in the country.

The present macroeconomic instability lies in the failure of the state to implement deep structural reforms to the economy for nearly twenty years. The COVID-19 pandemic has exposed Sri Lanka’s fundamental weaknesses that have plagued the economy for a long period of time.

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Defaulting debt repayment can have severe repercussions

Sri Lanka has been running deficits over the decades following the post- independence period when the fiscal deficit was over 10 percent of the GDP.

In 2020 it exceeded 10 percent of the GDP and is likely to deteriorate in 2021. “If the government continues to consume more than it earns or when the domestic private savings are not sufficient to finance the economy it can reflect in our current account deficit. In the absence of domestic saving, the country has to depend on foreign savings to bridge the current deficit,” said Dr. Roshan Perera, Senior Research Fellow of the Advocata Institute at the launch of a publication on “Framework of Sri Lanka’s Economic Recovery at a webinar held this week.

She said in the absence of FDIs coming into the country Sri Lanka had to borrow from abroad. In the 2000 period funds came mostly from bilateral and multilateral sources and concessional financing. But these funds ceased when the country’s rating was elevated to a middle- income country status. When Sri Lanka embarked on infrastructure projects in later years, it had to borrow from private lending agencies and international sovereign bonds with shorter grace periods with higher interest rates. This had an impact on debt service payment which has ballooned over the years. With low foreign inflows coupled with the COVID-19 pandemic, debt servicing has been a challenge, she added.

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Sri Lanka urgently needs ‘National Consensus’ on deepening economic crisis, policy analysts and politicians say

We are no longer talking about a crisis that is about to engulf us. We are now in its midst, though not its depths. The hope that the 2022 Budget would give the right signals, has evaporated, Prof. Rohan Samarajiva, a leading policy analyst and an advisor of the Advocata Institute said, last week.

He made these comments at Advocata’s latest event , “A National Consensus for Economic Reforms or “ආර්ථිකයට ජාතික සම්මුතියක්?”.

Professor Samarajiva provided a breakdown of severe economic and social challenges facing the country. His keynote speech stressed on the importance of building a national consensus to implement immediate reforms to tackle a wide range of issues ranging from unsustainable debt to shortages of essential items in the country.

The present macroeconomic instability lies in the failure of the state to implement deep structural reforms to the economy for nearly twenty years. The COVID-19 pandemic has exposed Sri Lanka’s fundamental weaknesses that have plagued the economy for a long period of time. The event brought together politicians representing the main political parties to discuss the importance of a united course of action, to drive Sri Lanka’s economy towards a path of growth.

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Advocata's event on the need for a broader consensus for economic restructuring | News 1st: Lunch Time English News | (25/11/2021)

Advocata's event on the need for a broader consensus for economic restructuring featured on Newsfirst Lunch Time English News

Advocata's event on the need for a broader consensus for economic restructuring | News 1st: Lunch Time Sinhala News | (25-11-2021) දහවල් ප්‍රධාන ප්‍රවෘත්ති

Advocata's event on the need for a broader consensus for economic restructuring featured on Newsfirst Lunch Time Sinhala News

On LBO : Deshal explains what's wrong with Sri Lanka's economy

Aug 01, 2016 (LBO) – Sri Lanka’s most urgent economic risk is external debt sustainability and it has been one driving factor behind macroeconomic volatility in the country, a young economist said.

Deshal de Mel delivering a public lecture hosted by the think tank Advocata Institute said the legacy of access to long term concessional debt and easy repayment schemes eventually enabled the country to build up a large public sector and debt burden.

“Post 2007 requirement to tap into global capital markets due to less access to concessional borrowings is one major reason,” de Mel said.

“Shorter repayment tenors and higher rates of interest – makes it essential to channel borrowings into remunerative investments.”

De Mel said high government borrowing levels influenced higher interest rates and crowded out private investment.

He said recent balance of payments weakness has been largely influenced by external debt repayments with implications for rupee depreciation.

“At other times fiscal expansion drives imports, contributing to Balance of Payments stress and rupee depreciation,” Mel said.

“Episodes of inflation in the past influenced by Central Bank’s accommodative monetary policy to ease government debt servicing.”

Financing the current deficit requires high levels of indirect taxation and it also affects consumer freedom and high import taxes restrict domestic competition.

As per statistics, government revenue has improved in first half of 2016 but sustained improvement needs a shift to direct taxes from regressive indirect taxes, he said

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