Sri Lanka’s underperforming state-owned enterprises (SOEs) with accumulated staggering losses exceeding Rs. 8 trillion over the past three decades, underscores the urgent need for structural reforms and efficient restructuring, especially under the IMF-backed economic recovery framework, This massive financial loss is almost equivalent to Sri Lanka’s pre-default external debt before 2022. SOE losses over the [...]

Business Times

SOE Reforms: Rs. 8 tn loss forces state action

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Sri Lanka’s underperforming state-owned enterprises (SOEs) with accumulated staggering losses exceeding Rs. 8 trillion over the past three decades, underscores the urgent need for structural reforms and efficient restructuring, especially under the IMF-backed economic recovery framework,

This massive financial loss is almost equivalent to Sri Lanka’s pre-default external debt before 2022.

SOE losses over the past 30 years are difficult to quantify precisely, but estimates and reports point to a significant cumulative loss, a senior official of the Finance Ministry said. The government spends nearly Rs. 300 billion annually to keep these institutions afloat, diverting crucial funds away from essential public services like healthcare, education, and infrastructure.

However with restored macroeconomic stability together with the timely corrective measures implemented in 2023 – 2024, the SOEs sector is expected to turn around to a growth trajectory in 2025 and beyond, he added.

The ministry has resorted to SOE reforms such as the implementation of cost recovery-based pricing for electricity and fuel, introduction of a water tariff formula, restructuring balance sheets of selected key entities.

This restructuring was done through the transfer of legacy debts to the Government balance sheet and settlement of cross liabilities and institutional improvement.

These reforms and restructuring have been taking place and some of the SOEs returned to profitability in 2023 and 2024. As such, the total profit of the key 52 SOEs increased by 19.9 per cent to Rs. 534.1 billion in 2024 compared to the total profit of Rs. 445.3 billion in 2023.

In 2024, 24 of the 41 non-financial SOEs recorded profits and 17 recorded losses (an increase from 13 in 2023). Significant budgetary support has been provided to the sector over the past five years, ministry data shows.

The Cabinet has approved drafting the Public Commercial Business Management Bill, aimed at reforming state-owned enterprises.

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