SOE reforms needed to reduce macroeconomic risks

The World Bank Development Report released in October 2022 indicates that public enterprise (PE) reforms are needed to reduce macroeconomic risks.

Several key state-owned enterprises suffered significant losses due to a combination of below-cost recovery prices, operational inefficiencies, impairment on foreign currency-denominated liabilities as part of the write-down, and poor financial management.

“In 2021, Ceylon Petroleum Corporation (CPC), Ceylon Electricity Board (CEB) and SriLankan Airlines (SLAL) suffered a combined operating loss (COL) equivalent to 1.6% of GDP. The report also revealed that the gross debt stock of these entities was estimated at 10% of GDP. Losses from these entities increased further to 4% of GDP in the first four months of 2022. More than two-thirds of this loss came from CPC’s operational losses due to the large exposure to currency risk in its balance sheet. .

“Immediate action is needed to restructure key state-owned enterprises, improve their governance and strengthen the government’s oversight role,” the report said. The implementation of pricing reflecting electricity and fuel costs in 2022 was a positive first reform to reduce the losses of public companies. Going forward, restructuring the balance sheets of CPC, CEB and SLAL will be key to Sri Lanka’s macroeconomic stabilization program. »