Restructuring of loss making state enterprises which were once dubbed as five monsters by a former Lankan finance minister should be the top priority of the newly elected government to fast track the island s economic growth following the end of the long drawn-out war, senior economists in the country stress.
According to recent data released by the Central Bank (CB), most of the State Owned Enterprises (SOE) namely the Postal Department, Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), Sri Lanka Transport Board (SLTB) and Sri Lanka Railways (SLR) plus the national carrier, SriLankan Airlines had made operating losses amounting to a whopping Rs.48.6 billion in 2009 that is equal to a percentage of the island s Gross Domestic Product (GDP).
It is no doubt that with the end of the war, the country is at a critical juncture and reviving these SOEs is catalyst for the progress of the economy, Managing Director of regional consultancy firm, Cornucopia Lanka Limited, Dinesh Weerakkody who was also the former Chairman/CEO of the Employee s Trust Fund (ETF), told The Bottom Line.
He said that public enterprises which are believed to be presently highly subsidised need to be right sized in order to improve productivity and efficiency.
It is highly overstaffed and there is a lot of wastage in the sector leading to lower per worker-productivity, Weerakkody said.
According to the data provided in the CB annual report, the two transport enterprises, Railways and SLTB, have made operating losses year after year since 2000 amassing cumulative losses of Rs.31.3 billion and Rs.30.3 billion, respectively, by end 2009.
In 2009, the Postal Department had lost Rs.2.4 billion, CEB Rs.7.4 billion, CPC Rs.12.3 billion, SLTB including the government subsidy, Rs.9.3 billion, Railways Rs.4.8 billion and SriLankan Airlines Rs.12.2 billion. Mihin Lanka, the budget carrier also lost Rs.930 million, according to statistics.
Highlighting the issue further, the recent CB report has also stated that structural and institutional changes that have been already identified among SOEs needed to be implemented in order to improve overall economic efficiency and productivity and to promote long-term economic growth.
In this respect, special attention is needed to implement appropriate changes in the areas of SOEs, health and education sectors to improve efficiency and productivity along with sound regulatory systems, the report stated.
The services rendered by most of these institutions are below the desired level and depend heavily on public funds rather than operating as commercially viable entities. Therefore, it is important that these institutions operate at least on cost recovery basis, while improving efficiency to reduce their dependence on the budget, the report pointed out.
Meanwhile, another CB economist and the Acting Director at the Economic Research Department, K.D. Ranasinghe advocating a similar view, said that the proposal to increase workplace efficiency and productivity by 50% during the next six years as stated in the government s policy agenda will need to be credibly implemented to place the country on a higher growth trajectory.
Necessary changes, as provided under the Sri Lanka Electricity Act (SLEA), need to be introduced to make CEB a financially viable institution in the long run, thereby reducing its reliance on the government budget and on bank credit to meet its financial needs, he said speaking on the reforms needed in the power sector.
However, contrasting in opinion, Senior Economic Advisor and Director Financial Service Cluster, Strategic Enterprise Management Agency (SEMA) Dr. Ranjith Bandara said that since most public institutions are meant to provide public goods and services, they do not necessarily need to operate with the ultimate motive of generating profits.
Look at the public transportation for instance. They might not be making enough profits but the benefit derived from the services it renders to the public is proportionately far higher, he said.
He added that although restructuring of state institutions is needed for them to be run efficiently, one should however not deviate from understanding the prime objective of a state enterprise which is to provide public goods and services.
There are two schools of thought in economics. One is to quantify in terms of costs and benefits (monetarist) while the other is to compare the public goods and services it generates (Keynesian), which is what is relevant for public institutions to adhere to, he suggested.