ECONOMYNEXT – The International Monetary Fund’s (IMF) new Mission Chief for Sri Lanka wants more progress in the island nation’s state-owned enterprises reforms amid delays due to the new government’s decision to change the divestment efforts under the previous administration.
With more than 400 SOEs and many of them underperforming and financially unsustainable, the government has committed to reforms under its IMF agreement to reduce fiscal deficits, enhance transparency, and improve efficiency.
Key commercial institutions like SriLankan Airlines, the Ceylon Petroleum Corporation (CPC), and the Ceylon Electricity Board (CEB) have long operated with massive losses, draining public finances through bailouts and subsidies, leading the island nation to an unprecedented economic crisis with a sovereign debt default in 2022.
Previous government led by Ranil Wickremesinghe had planned to divest some of the state owned enterprises to reduce the government stake, but the move was reversed after President Anura Kumara Dissanayake was elected as his party opposed such a move, citing the party’s stance against privatization.
The government stopped the privatization process of national carrier SriLankan Airlines and has promised to come up with an alternate reform plan.
On Tuesday (29), the government said the Cabinet of Ministers had appointed a committee to review an initial draft of proposed “State Commercial Enterprises Management Draft Bill” to prevent political influences and to appoint professionals with proficiency for its board of directors.
“We understand that the authorities are underway in preparing a medium-term strategic plan to restore SriLankan Airlines the operational viability and to resolve its legacy debt,” Evan Papageorgiou, the new IMF Mission Chief for Sri Lanka, told reporters on Tuesday (29) at a virtual media briefing on the Staff-Level Agreement on the Fourth Review under the Extended Fund Facility (EFF) for Sri Lanka.
“We know that the current budget, the 2025 budget, has set aside 20 billion rupees to pay off some of the debt of the airline. And we are also aware that SriLankan Airlines has also hired a financial advisor to restructure its international bonds,” he said.
“So these are all steps in the right direction, but we think these need to pick up pace and pick up a little bit more faster pace so we can have a good resolution on all these outstanding issues.”
“So in general, with SOEs, we think there is a way forward and we want to see more progress there.”
Papageorgiou said there has been commitment by the Sri Lankan government from the beginning of the program until now to strengthen the governance of SOEs, to get to the bottom of their outstanding debt and resolving legacy debt as well as implementing cost recovery pricing to ensure that they remain financially viable.
“These are all very important conditions because they will reduce fiscal risks to the government, to the state, and avoid that they become a burden for public finances and ultimately taxpayers and also Sri Lankans,” he said.
“So within those commitments, it’s important to highlight a few that under the program these include also containing risks from the guarantees issued to SOEs.”
“For example, the EFF program includes indicative targets which are setting ceilings on total and foreign currency treasury guarantees for SOEs. Another condition is to refrain from new FX borrowing by non-financial state-owned enterprises that already have limited FX revenues so that we don’t introduce more wrong-way risk into these entities.”
Papageorgiou insisted on making SOEs more transparent and the IMF has been advocating and mandating publishing quality financial statements for the 52 largest SOEs in a timely manner to help bring more light and greater scrutiny.
“It is also important to ensure that consumers of services of these SOEs receive the best value for the price they pay. And, you know, obviously that relates to a wider range of SOEs, including also the electricity and the fuel sector,” he said.
“And this is the same thing as you would expect from a private company. In other words, you would want SOEs to run in the most efficient manner, purely on a commercial basis, ensuring that they are dependable and, of course, they are free of corruption, which is a good disclosure to that extent.” (Colombo/April 30/2025)
