The State sector, a burden too heavy to carry

It was reported this week that the Treasury has informed all Government agencies to limit bonus payments for public sector employees this year given the ongoing economic circus. Accordingly, payment of bonuses to employees of Government Corporation Statutory Boards and Companies has been limited. The Treasury also informed that the bonus payment can be made subject to a maximum limit of only Rs. 25,000 for employees of Government Corporation Statutory Boards and Companies.

Sri Lanka’s public sector has over 1.5 million employees and as a result a large portion of the Government revenue must be spent on their salaries and wages. In 2023 Budget Salaries and wages account for Rs. 1 trillion apart from Rs. 375 billion for pensions. This burden on Government coffers has limited expenditure on other public purposes, including developmental purposes.

A Presidential Commission is to be appointed to achieve reforms in the public sector. This was announced by President and Finance Minister Ranil Wickremesinghe in his presentation of the 2023 Budget yesterday in Parliament. The proposed Presidential Commission is to review all aspects of public service in line with current requirements and make recommendations including necessary reforms.

At present the State is bearing the cost of 420 Government institutions and enterprises. There are 52 strategic State Owned Enterprises (SOEs) termed as State-Owned Business Enterprises (SOBEs), monitored by the Ministry of Finance, 87 SOEs with strong commercial aspect, monitored by the Department of Public Enterprises and 117 SOEs that are non-commercial entities, monitored by the National Budget Department. SOEs represent a key element of the Sri Lankan economy, being prevalent in strategic sectors such as energy, water, ports, banking, insurance, transportation, aviation and construction. The annual loss of the major 52 SOEs alone amounted to a staggering Rs. 966 billion in the first half of 2022.

Losses incurred by SOEs has long been an issue that has worsened fiscal problems in Sri Lanka which has contributed significantly to the current economic crisis. Prolonged losses by 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. Exacerbating the issue is the fact that there are hardly any audit reports for the numerous SOEs. In the past, reports compiled by the Committee on Public Enterprises of parliament 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. With the country in the midst of an unprecedented economic crisis, the public coffers can no longer afford to be burdened with financing such inefficient entities. Addressing the matter of SOEs must go hand-in-hand with the rest of the Government’s economic priorities if Sri Lanka is to emerge clear from its current economic crisis.

Going into the new year, reform of lossmaking SOEs must be among the top priorities of the Government.