Sri Lanka is currently confronting one of the worst economic crises in its recent history, with a number of critical issues surfacing day after day. Despite the deep economic emergency, state-owned enterprises control a large area of the national gross domestic product (GDP). The continuous losses from the vast majority of SOEs keep adding to the economy, creating a huge fiscal deficit.
It is no secret that Sri Lanka’s loss-making SOEs create a grave burden on public finances. The majority of these state enterprises pose a threat to state coffers and it is becoming increasingly difficult to keep them afloat any further.
Nevertheless, some of them are strategic sectors, such as electricity, water, petroleum, public transportation, ports, aviation, and many more that are directly responsible for day-to-day public life. Therefore, the Government has no alternative other than to fund them further through state revenue.
Contradictory
Even the number of SOEs that exists in Sri Lanka is contradictory. However, according to the mid-Year Fiscal Position Report – 2019, issued by the Minister of Finance, there are 422 institutions in Sri Lanka, of which 287 entities come under the purview of the Department of Public Enterprises.
The media has time and again revealed that these institutions accumulate losses of billions of rupees annually due to mismanagement.
For example, Sri Lankan Airlines, one of the most notorious white elephants and the third-largest loss-maker, year by year squanders colossal amounts of public funds into the state coffers.
The national career owns only 24 serviceable aircraft but recruits over 6,600 employees, counting 274 people per plane. The number of employees per plane is perhaps exorbitantly higher than any commercial airliner in the world. According to the available information, the cumulative loss of the organisation is well over 230 billion. Despite the enormous loss, the employees of Sri Lankan Airlines allegedly enjoy high salaries and the best perks, perhaps over many other state institutions. Not only Sri Lankan Airlines, despite losses, employees of most other establishments also enjoy perks such as annual bonuses, overtime payments, free transport, and so on.
Waste
For example, losses incurred in SOEs such as state-owned TV channels, Sri Lankan Airlines, Engineering Corporation, Sathosa, and many other establishments could have been averted with more efficient financial management and by cutting down on waste.
Recent surveys and opinion polls reveal that over 80 percent of Sri Lankans believe that state enterprises do not provide adequate services to justify the losses they are continuously making. The general public is of the strong opinion that most of the SOEs are infested with mismanagement, malpractices, and corruption, and that the relevant authorities and the employees conveniently ignore them as they recklessly waste taxpayers’ money.
Common citizens are of the view that, except perhaps, for the Committee on Public Enterprise (COPE) and the Committee on Public Accounts (COPA) that investigate mismanagement, other parliamentary committees do not seem actively engaged in public issues, despite that being the goal of such committees.
Mismanagement
Although time and again, COPE and COPA reveal malpractices, financial abuse, and mismanagement, except for the Central Bank fiasco in 2015, where some mediocre action was taken, none of the exposures led to proper action, legal or otherwise. Usually, in Sri Lanka, perpetrators who misuse public funds get off scot-free.
Therefore, people also treat these committees as white elephants that unreasonably lean on the taxpayer. Also, most of these committees comprise parliamentary members who do not seem to have adequate expertise to make justifiable recommendations.
Soon after assuming office, President Gotabaya Rajapaksa, with all good intentions, appointed a high profile selection team to recruit chairpersons and board directors of SOEs. The elite panel appointed were successful professionals from both the private and public sectors. The appointments were made at the initial stage with a well-planned process.
Regrettably, the exercise that would have been ideal in the long run appeared to have fallen apart in a short period, seemingly due to undue pressure from senior politicians.
Not only is the habitual bureaucracy that exists in the public service, but also political manipulations have crept in and disrupted the new management approaches of most of these institutions, leading to resignations and removals of the appointed heads of these SOEs. This is proof that an outsider with management experience, with a good track record and innovative ideas, cannot survive in these corrupted institutions.
Despite the dismal performance, SOEs remain an important source of socio-economic development in Sri Lanka. The Finance Ministry recently issued directives to heads of SOEs, holding them accountable for their decisions and actions. The ministry has laid down strict guidelines on recruitment, payments, and overall performance.
The Finance Ministry also introduced an Operation Manual (OM) on how to conduct business within SOEs, as well as guidelines on corporate governance, possibly to reduce the heavy politicisation and other interferences in the SOEs.
The irony is that successive Governments have offered similar directives from time to time, to no avail. The directives were ignored after a while by the management due to the absence of proper monitoring.
Any private sector entity, from the smallest to the largest, knows that monitoring performance effectively leads to success and growth, regardless of the size of the operation. It is a fact that every competing private sector establishment operating in similar fields as SOEs is successful in commercial activities.
Any business operation that focuses on cost-cutting and waste reduction to earn profits. If they cannot make profits, they simply wind up as they neither have the intention of continuing at a loss nor do they have a saviour such as the treasury to fund them through losses.
Therefore, the pertinent question from the citizenry is why SOEs are run at heavy losses when the private sector in similar operations makes reasonable profits. To the general public, the answer is obvious. If the political manipulations stopped, the attitudes of the employees were positive, and the management became efficient, all SOEs would stand on their own without begging for money from the public.
Let alone the difficulty in identifying the loss-making SOEs, even the exact number is not clear on any of the relevant Government websites. Similarly, in order to take any action, except for the institutions that are classified as “strategically important,” the public accounts of most other institutions cannot produce properly audited documents, according to media reports.
Unproductive
The country simply cannot afford to feed the enormous number of unproductive cadre who enjoy benefits regardless of all the financial constraints the rest of the citizenry undergoes. Nevertheless, regrettably, any attempt to control expenditure is challenged by trade unions influenced by dubious political parties.
Under-performing SOEs have now become a dire necessity due to the current economic crisis the country is in and perhaps will continue for a prolonged period into the future. Hence, a mechanism to monitor the overall performance of the SOEs with adequate power for both rewarding and coercion is an absolute necessity. More importantly, the mechanism must be free from political interference and manipulation.
However, by analysing the history of the SOEs from their inception, devising such a system will be a daunting task and require extremely bold, strong, and fearless political leadership. Any productive proposal on reforms will have to confront vehement resistance from political factions and trade unions with political agendas.
Apparently, the public is not yet fully aware of the full extent of the financial damage caused by the loss-making SOEs and the extent to which public resources are being utilised. The monitoring arms of the Government are evidently inefficient and ineffective on many counts.
Although these establishments are owned by countrymen, many of them are invariably controlled by politicians through senior people appointed to their whims and fancies.
In his manifesto, the President has called upon the chairmen and board directors to ensure the institutions are free of malpractices and corruption. Nevertheless, evidently, none of the institutions has shown adequate progress. Hence, it is time for President Rajapaksa to crack the whip on those who are accountable and get under-performing Government commercial operations back on track.