SL eyes multilateral funding to power SOE reform agenda

• SOE Restructuring Agency Chief says Treasury doesn’t have fiscal capacity space to fully finance SOE reform agenda
• Experts call for the listing of SOEs to help bring in transparency and raise capital

By Shabiya Ali Ahlam

Sri Lanka would need to reach out to multilateral agencies in the near future to help fund the ambitious task of reforming the State-owned enterprises (SOEs), as the Treasury has very little fiscal capacity to offer the required financial assistance for this purpose, Restructuring Agency Chairman Suresh Shah said.
The chief of the newly initiated SOE Restructuring Agency affirmed there is no other way around it given that the interim budget allocated Rs.200 million for the transforming efforts of the
burdening entities.

“It is very clear that we would need funding assistance from multilaterals. There is no question about it. We would need transaction advisors; we would need advisors on strategies on certain SOEs. We would need valuations done and all is going to require a fairly significant amount of funding. And I don’t think the government budget has the space to do a lot of these things,” said Shah while addressing the technical sessions of the Sri Lanka Economic Summit 2022, yesterday.

In the upcoming reform efforts, he stressed it is imperative for the SOEs to come under the Ministry of Finance alone, and the responsibilities with regard to management must not be passed on to line ministries. Doing so will help iron out several issues and help establish a clear line of authority and control of the entities.
Further, as privatisations of the SOEs would take place going forward, Shah said, unlike previous instances, the effort must not be carried in the “back-room”.

“This blows things up. We need to talk to the relevant stakeholders, including the trade unions, and get them on board. If they don’t come, they will at least start to think there is a different perspective. We need to be proactive on the communication side,” he noted. 

Reflecting similar sentiments, Verite Research Research Associate Malathy Knight said maintaining transparency and sharing information on the developments of the SOE is essential when it comes to public interest, as they are the final owners of these entities. “Their interest is paramount and it needs to be safeguarded. If you go into such a vast reform process, public buying is vital for sustainability,” she said.
For the year 2021, only 21 percent of the SOEs disclosed their financial information. The remaining have made no efforts thus far in this regard, not are held accountable for failing to disclose.

According to Knight, the solution for this major issue that has gone unaddressed for decades is straight and readymade, which is to list them on the Colombo Stock Exchange where disclosures are a legal requirement.
Dumith Fernando, Asia Securities Chairman, went on to share that listing the entities will not only help the SOEs become transparent but will also help raise the necessary capital. It is also a good way for the government to monetize and raise money when required, he pointed out.

“Listing establishes rules and guidelines that need to be fulfilled in the long term. This requires proper board structure, independent governance, proper reporting and so on. This type of transparency is the first step in managing the SOEs better,” said Fernando.