Prime focus on SOE reform and corruption

President Ranil Wickremesinghe, as Finance Minister, yesterday presented the Budget for 2024, a year which will start the election cycle. The welfare allocation for 2024 is close to Rs.  200 billion compared to Rs. 65 billion last year. The increase in benefits for 1.4 million public servants and 600,000 pensioners is on the cards from 1 April 2024. 

Despite 2024 being an election year, it is imperative that the Government keep focus on the necessary tightening on State sector expenditure and living within its means. Overspending on the State sector, especially on loss making enterprises, corruption and wastage were some of the fundamental reasons for Sri Lanka’s economic collapse in 2022.

The Appropriation Bill for 2024 will witness significant increase in Government expenditure. Further, with the economic recovery being slow, the amount of revenue that could be expected through taxes should be limited. Unless State sector expenditure is brought under control, it is likely that the country will face a similar crisis as last year in the near future.

Prolonged losses by State Owned Enterprises (SOEs), partly due to unsound decisions made by policymakers, have resulted in large budget deficits; and despite the need to reform critical SOEs, successive Governments have failed to achieve this in a genuine and sustainable manner. 

The lumbering giants such as the CEB, and the Ceylon Petroleum Corporation have become a burden on the taxpayer and a drain on the country’s finances. SriLankan Airlines is saddled with $ 1 billion in debt and other dues apart from massive losses.  Exacerbating the issue is the fact that there are hardly any audit reports for the numerous SOEs. Even obtaining a complete list of SOEs is a challenge with limited information in the public domain and the Department of Public Enterprises has not released an annual report since 2018. Right to information requests often go unanswered. 

In the past, reports compiled by COPE and the Auditor General have highlighted repeated instances of fraud, mismanagement, corruption and negligence. The issues no longer appear to be isolated incidents of opportunistic behaviour by individuals, or occasional lapses in control, but point to deeper structural weaknesses, which need to be addressed by reforms.

Political appointees, poor governance and management, absence of market-based pricing and powerful trade unions that scuttle both good and bad reforms have been some of many perennial issues plaguing Sri Lanka’s SOEs for decades. However, reforms, which could include public-private partnerships or outright privatisation, come with political dangers that the current Government which does not have a popular mandate may be reluctant to tackle.

Sri Lanka which ranks at 58 according to the size of its population size, has the 17th largest military in the world which consumes the largest portion of the budget. As a percentage of GDP, Sri Lanka spends nearly 2% on military expenses, an extraordinarily high amount for a country that does not face an existential security threat. Even 14 years after the end of the separatist conflict, the military has not significantly reduced its numbers, nor restructured itself to suit the different challenges and realities of a post-conflict, democratic country. The Tri Forces and paramilitary groups such as the home guards total more than 350,000 according to publicly available data.If there is to be any hope of economic recovery, the Government needs to address colossal expenditure in the State sector. Populist budgets, with only short-term benefits, along with systemic corruption had brought Sri Lanka to its economic nadir. Only a budget that would address these structural issues will suffice to fix Sri Lanka’s economic woes.