By: Staff Writer
March 04, Colombo (LNW): Sri Lanka’s new administration, led by President Anura Kumara Dissanayake, has adopted a different strategy for restructuring state-owned enterprises (SOEs) under the International Monetary Fund’s (IMF) bailout program.
This approach deviates from the commitments made by the previous government, according to Labour Minister and Deputy Economic Development Minister Anil Jayantha.
While the ruling National People’s Power (NPP) party strongly opposed the previous government’s IMF agreements during its election campaign, it did not pledge to terminate the program upon assuming office.
The IMF recently released the fourth tranche of its $3 billion bailout package, which is contingent on implementing structural reforms, including SOE restructuring. The previous government had begun privatizing certain SOEs despite trade union protests.
Minister Jayantha, speaking to the media following the IMF’s latest disbursement, stated that a newly appointed committee is evaluating all SOEs to determine the best strategy for managing them efficiently while minimizing the financial strain on the treasury.
He emphasized the administration’s goal of ensuring that state institutions contribute to market stability, prevent monopolies, and provide goods and services at affordable prices while improving quality.
SOEs and the IMF Bailout
SOEs have been central to Sri Lanka’s economic restructuring efforts under the IMF’s bailout program. In March 2023, the IMF approved a $3 billion, 48-month Extended Fund Facility (EFF) to help the country regain macroeconomic stability following its financial crisis.
A major component of this program involves reforming SOEs to enhance efficiency and reduce their financial burden on the state.
Historically, SOEs have been a significant contributor to fiscal deficits, necessitating urgent reforms to align with the IMF’s conditions. The government has since taken steps to improve governance, enhance transparency, and introduce cost-recovery pricing mechanisms, particularly in sectors like energy.
IMF’s Role in Restructuring
Minister Jayantha clarified that the IMF has not imposed or forced specific actions on Sri Lanka but has emphasized the importance of reducing the financial strain caused by inefficient SOEs. He dismissed claims that the IMF demanded privatization, explaining that the organization seeks a disciplined restructuring approach rather than outright sales.
The restructuring process includes revising pricing structures to reflect market realities and cutting subsidies that have historically led to inefficiencies and financial losses. These measures are designed to alleviate the burden SOEs place on the national budget.
Economic Implications
Last week, the IMF completed the third review under the EFF arrangement, allowing Sri Lanka to access the fourth tranche of approximately $334 million, bringing the total disbursement to $1.34 billion. The IMF acknowledged strong progress in the reform program, with most targets and benchmarks being met, including those related to SOEs.
Additionally, the IMF urged Sri Lanka to restore cost-reflective electricity pricing to mitigate fiscal risks associated with SOEs. The government’s restructuring initiatives are expected to help reduce fiscal deficits, enhance public sector efficiency, and contribute to long-term economic recovery.
