ECONOMYNEXT – Sri Lanka’s new government under President Anura Kumara Dissanayake has been following a different approach on the restructuring of state-owned enterprises (SOEs) under the International Monetary Fund’s bailout package compared to what the last government agreed, Labour Minister and Deputy Economic Development Minister Anil Jayantha said.
President Dissanayake-led ruling National People’s Power strongly resisted the previous government’s commitments agreed with the IMF during its election campaigns, though it did not promise to cancel the programme if it came to power.
The IMF disbursed the fourth tranche of the $3 billion bailout package which is based on structural reforms including restructuring of state-owned enterprises. The previous government was in the process of privatizing some of the SOEs amid protests by trade unions.
“We have just appointed a committee, they are looking into all these SOEs to take a final decision how best we can manage the SOEs without having a burden on the treasury and meantime to increase the efficiency,” Minister Jayantha told reporters on Saturday (01) after the IMF announcement of the disbursement.
“So these are the approaches and again how best we could utilize all the state institutions in order to make sure there would not be market failures, there would not be any oligarchs in the market and to ensure that we would be able to provide goods and services to the market at an affordable rate continue to improve the quality.”
“So this is our line of dealing with the SOEs and that restructuring process is going on.”
Sri Lanka’s state-owned enterprises (SOEs) have been a focal point in the nation’s economic restructuring under the current IMF bailout package.
In March 2023, the IMF approved a $3 billion, 48-month Extended Fund Facility (EFF) arrangement for Sri Lanka to support the country’s efforts in restoring macroeconomic stability and debt sustainability after the island nation declared bankruptcy.
A significant aspect of the program involves the restructuring of SOEs to enhance their efficiency and reduce fiscal burdens.
Sri Lanka’s SOEs have historically contributed to substantial fiscal deficits, necessitating reforms to align with the IMF’s conditions.
The government has initiated measures to improve governance, enhance transparency, and implement cost-recovery pricing mechanisms in key SOEs, particularly in the energy sector.
IMF NEVER INSISTED
Minister Jayantha said the IMF “did not impose or force anything” on Sri Lanka.
“The IMF’s concern, especially when we work with a kind of constrained framework, is that the treasury should not bear the unnecessary cost of SOEs,” he said.
“When a SOE comes out with a particular product, specially energy or any other thing, it should be cost reflective and there should not be unnecessary burden to the treasury because we had had a bad experience of corruption, unnecessary borrowing, wrong dealings.”
“So it is a myth that the IMF has insisted. The IMF wanted to have a disciplined approach towards restructuring. Restructuring does not mean selling. So we are working on it.”
As part of the restructuring efforts, the government has undertaken steps to reduce losses in major SOEs. This includes revising pricing structures to reflect market conditions and reduce subsidies that have historically led to financial inefficiencies.
These reforms aim to alleviate the fiscal burden imposed by SOEs on the national budget.
The IMF completed the third review under the EFF arrangement last week, allowing the authorities to draw the fourth tranche of approximately US$334 million, bringing the total disbursement to about US$1.34 billion.
The IMF highlighted strong program performance, with most quantitative targets and structural benchmarks being met, reflecting the government’s commitment to restructuring efforts, including those pertaining to SOEs.
It also insisted on restoring cost-recovery electricity pricing without delay to contain fiscal risks from state-owned enterprises.
The restructuring of SOEs is anticipated to contribute to Sri Lanka’s broader economic recovery by reducing fiscal deficits and improving public sector efficiency.
These reforms are expected to enhance investor confidence, promote sustainable economic growth, and ensure the long-term viability of essential public services. (Colombo/March 03/2025)
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