ECONOMYNEXT – Sri Lanka government has committed to continue reforms to the International Monetary Fund on state-owned enterprises (SOEs) including settlement pf legacy debts and limiting foreign borrowing, the latest IMF document showed.
Sri Lanka’s current government has opposed privatization move proposed by the previous government, but it has agreed for restructuring, the document showed. The government said both state run Ceylon Petroleum Corporation (CPC) and Ceylon Electricity Board have already included a debt repayment portion in their pricing formula already.
“We will press ahead with structural reforms to improve financial viability of SOEs,” the government has told the IMF in its Memorandum.
On the CPC, the government has said a small margin in the fuel pricing formula is utilized to repay $251 million of the old financial obligations.
“Of this amount, $146 million remains to be repaid as of end-March 2025, and we will ensure that these repayments continue.”
“We plan to settle CEB’s remaining legacy debt (incurred prior to 2023), estimated at about Rs.180 billion as of end-2024. Repayment of this debt is included in the electricity tariff calculation starting in June 2025,” the government said referring to Ceylon Electricity Board.
“We are finalizing a medium-term strategic plan for Sri Lankan Airlines (SLA), which will include plans to restore operational viability and resolve legacy debts.”
Analysts say restructuring Sri Lanka’s state-owned enterprises (SOEs) has become extremely difficult without IMF intervention due to entrenched political patronage, weak governance structures, and resistance from powerful labour unions.
Many SOEs operate with chronic losses and inefficiencies, yet successive governments have avoided reform out of fear of political backlash and social unrest.
These entities are often overstaffed, mismanaged, and lack transparency, making them a significant drain on public finances. Without the external pressure and technical guidance provided by the IMF, there has been little political will to implement unpopular but necessary reforms such as downsizing, tariff adjustments, or privatization.
The IMF’s conditionalities under the Extended Fund Facility have brought renewed urgency and structure to SOE reform efforts, tying financial assistance to measurable progress and helping overcome domestic inertia that has long stalled meaningful change
Sri Lanka’s government also has promised to a few measures to strengthen SOE governance and enhance their financial transparency including clarifying the mandates of key SOEs through Statements of Corporate Intent and hold their management accountable for delivering satisfactory results informed by key performance indicators.
The government is also planning to review the framework for selecting SOE board members to ensure that they are qualified and independent as well as to ensure that all 52 major SOEs publish their audited financial statements by end-June of the following year.
“We have published 2023 audited statements of 45 SOEs. The remaining seven SOEs continue to encounter delays related to the need to clear the backlog of financial statements since 2020-22,” the government said in the memorandum to the IMF.
“We are drafting the new SOE law with assistance from the World Bank, which will incorporate many of these transparency and governance requirements including an explicit policy on the management of state financial assets and ensure that all officers and directors of SOEs are appointed in a rigorous, transparent, and merit-based process.”
“We will ensure that this new law is consistent with the PFM (Public Finance Management) Act and that the government has full authority to exercise financial oversight of SOEs. We plan to enact the SOE law by end-2025. We will consult with the IMF before submitting the SOE law to Parliament.”
The government also promised the IMF of continuing to strengthen the framework for SOE borrowing.
“We will continue to ensure that new SOE borrowing is limited to the financing of commercially viable activities, and that, except for project loans on-lent by the Treasury and short-term trade financing, there will be no new borrowing in foreign currency (FX) for non-financial SOEs with less than 20 percent of revenues denominated in FX,” the government said.
“Guarantees on FX borrowing will remain allowed on exceptional basis to facilitate IFI (International Financing Institutions) financing to SOEs under very strict conditions.” (Colombo/July 11/2025)
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