Sri Lanka’s loss-making state-owned enterprises (SOEs) are a persistent drain on public finances and a major obstacle to fiscal stability. Their continued losses add to national debt, crowd out spending on health, education and infrastructure, and slow the country’s economic recovery.
Scale of the Losses
Government and IMF data show that in 2024 the fifty-two largest SOEs together recorded losses exceeding LKR 150 billion. The biggest contributors were:
- Ceylon Electricity Board (CEB)
- Ceylon Petroleum Corporation (CPC)
- SriLankan Airlines
- Sri Lanka Transport Board (SLTB)
These four alone account for most of the shortfall. Treasury transfers and debt guarantees used to keep them operating increase the public debt, which is already at levels that required IMF support.
Why Losses Persist
- Price controls: CEB and CPC sell electricity and fuel below cost to protect consumers. When global energy prices rise or the rupee weakens the gap between selling price and production cost widens immediately.
- Operational inefficiency: Over-staffing, poor maintenance and outdated equipment raise costs.
- Political interference: Tariff adjustments are often delayed for electoral reasons and senior appointments are frequently political rather than merit-based.
- Poor capital management: SriLankan Airlines took on heavy borrowing for fleet expansion without a viable repayment plan, turning debt service into a permanent expense.
These problems are structural. Without fundamental changes, losses will recur even when market conditions are favourable.
Impact on the Economy
Covering these losses absorbs public funds that could be used for essential services. Treasury guarantees for SOE borrowing increase overall public debt and push up the cost of government borrowing. To stabilise the budget the state must either raise taxes or reduce spending elsewhere. Households and businesses ultimately bear the cost through higher taxes and weaker public services.
Reform Steps Under Way
- To meet the conditions of the IMF programme and to stabilise the economy, government has begun a series of reforms:
- Energy tariff revisions in 2023–24 have reduced, though not eliminated, losses at CEB.
- Plans are in place to partially privatise SriLankan Airlines and to bring in private partners for CPC’s retail operations.
- A draft SOE Governance Bill aims to create independent boards, mandate transparent financial reporting and introduce performance contracts for senior management.
These moves face political resistance but are essential for long-term fiscal health.
Choices for the Future
Sri Lanka now has to decide how far to open SOEs to private participation and how to impose strict commercial discipline. Key priorities:
- Introduce cost-reflective pricing so tariffs and fuel prices match production costs.
- Install professional boards and management insulated from short-term political pressure.
- Set clear performance targets with public reporting and consequences for failure.
State ownership is not automatically a problem; countries such as Singapore and Malaysia show that publicly owned enterprises can perform well when governed effectively.
Conclusion on Sri Lanka’s SOEs
Loss-making SOEs are a central challenge for Sri Lanka’s economic recovery. Their annual losses around 7–8 % of GDP when debt guarantees are included are too large to ignore. Without reforms that enforce commercial discipline and reduce political interference, these enterprises will continue to divert scarce public money and keep national debt high. Reform is not optional; it is a precondition for sustainable growth.
Read “Overhauling Sri Lanka’s Outdated Statistics Law: A Blueprint for Credible Data and Modern Governance” here.
