Friday, September 22, 2023

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Govt. urged to expedite sale of SOEs if it wants to avoid IMF

Sri Lanka’s State owned Enterprises (SOEs) are set to undergo structural reforms making it more financially viable, competitive, and innovative.

Sub-optimal performance of the SOEs is driven by a lack of capacity, transparency, and accountability remains a concern and, hence, some have become a burden to the public coffers. 

Therefore, the government is mulling to restructure SOEs with Public Private Partnership while the state-owned asset sale process is being, a leading Colombo-based investment and equities broking firm said.

 The COVID-19 pandemic has given prominence to the role played by State Owned Enterprises (SOEs). However, The aggregated net profits of the 52 strategic SOEs was Rs. 7.3 billion for the first seven months of 2021; out of which 32 SOEs recorded an aggregated profit before tax of Rs. 102.8 billion. 

However, this performance is eroded by the balance of 20 SOEs’ aggregated net loss of Rs. 95.5 billion. Only 19 SOEs paid dividends and levies to the government amounting to Rs. 13.7 billion in the first seven months of 2021 with a year-on-year increase of 63 percent on the back of higher payments of dividends and levies by financial and telecommunication sectors.

 A Committee is appointed by the Cabinet of Ministers to make decisions on the remuneration packages and recruitment processes of selected SOEs in order to achieve the objectives of the government policy framework. 

Cabinet approval is already granted to recruit high caliber professionals to the Board of Investment of Sri Lanka (BOI) to increase Foreign Direct Investments (FDIs) with an aim to fuel the economy.

 Furthermore, introducing technology into the financial and operational management systems of the SOEs has been identified for corrective measures in advance. In this regard, a web based data collection machanism has been introduced to make SOE monitoring further strengthening. 

“Sri Lanka has two key options at this juncture; first, to maintain status quo, if sufficient bilateral lending and swap agreements materialise early on or second, to reach out to the IMF for a long-term agreement,” said Asia Securities Research Macro Economist Lakshini Fernando, presenting Sri Lanka’s macroeconomic outlook for 2022.

The economist noted that in the current context, the first option is viable only if non-debt inflows of at least US$ 3 billion come, in addition to the government-to-government funding lines.

“In the absence of about US$ 3 billion of inflows, there will be difficulties in meeting the upcoming payment towards the second half of the year,” said Fernando.

The government has made it clear in the recent weeks that the depleted reserves position will not stop Sri Lanka from meeting the US$ 500 million International Sovereign Bond (ISB) commitment next week.

But, Fernando said that towards the second half of the year, the government could come under heightened pressure when it tries to settle the US$ 1 billion sovereign bond due in July, without bolstering its foreign reserves.  
In terms of the rupee, Fernando said Asia Securities has factored in a “very sharp” correction this year.

“We expect some of that correction to take place at least in the first quarter of this year, probably towards the early end of the quarter. By the end of the year, we expect the currency to be at about Rs.245 to Rs.250 (against the US dollar),” said Fernando.

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