Sri Lanka's state-owned enterprises face renewed scrutiny as financial losses mount, sparking debate about the government's role in business operations. With 18 out of 52 major state enterprises recording losses in 2025, questions arise about whether public resources are being effectively utilized or simply drained by inefficient operations.
Current Financial Reality
According to the Ministry of Finance mid-year report for 2025, the financial performance of state enterprises presents a mixed picture. While 34 major state-owned entities remain profitable, the 18 loss-making enterprises continue to burden public finances. This 35% failure rate raises significant concerns about operational efficiency and strategic management within the state enterprise sector.
The losses extend beyond mere numbers, representing missed opportunities for public investment in healthcare, education, and infrastructure development. Each rupee lost in inefficient state operations could have been redirected toward essential public services that directly benefit citizens' welfare and economic growth.
Arguments for State Enterprise Reform
Critics argue that government involvement should be strictly limited to national security and essential services, leaving commercial activities to private sector efficiency. This perspective emphasizes that competitive markets naturally eliminate inefficient operators, ensuring resources flow toward productive uses.
Private sector advocates point to improved efficiency, innovation, and customer service that typically accompany privatization. They argue that removing political interference from business decisions would allow these enterprises to operate based on market principles rather than political considerations.
The financial burden on taxpayers cannot be ignored. Loss-making state enterprises essentially require public subsidies, meaning ordinary citizens fund unsuccessful business ventures through their tax contributions. This arrangement seems particularly problematic when private alternatives could potentially provide similar services more efficiently.
The Case for Strategic State Ownership
However, proponents of state enterprises argue that certain sectors require government involvement to ensure universal access and strategic national interests. Essential services like utilities, transportation, and telecommunications may need state oversight to prevent market failures and ensure equitable distribution.
State enterprises often serve social objectives beyond profit maximization. They may maintain services in remote areas where private companies find operations unprofitable, ensuring national connectivity and equal access to essential services regardless of geographic location or economic viability.
During economic crises, state enterprises can act as stabilizing forces, maintaining employment and essential services when private companies might reduce operations or exit markets entirely. This counter-cyclical role provides valuable economic stability during challenging periods.
International Perspectives and Best Practices
Globally, successful state enterprises demonstrate that government ownership doesn't automatically guarantee failure. Singapore's Temasek Holdings and Norway's Government Pension Fund Global show how professional management and clear governance structures can generate substantial returns for public benefit.
The key differentiator appears to be governance quality rather than ownership structure. Countries with transparent accountability mechanisms, professional management appointments, and clear performance targets tend to achieve better results from their state enterprises.
Reform Options and Strategic Considerations
Rather than wholesale privatization or continued inefficiency, Sri Lanka could explore hybrid approaches. Public-private partnerships might combine government strategic oversight with private sector efficiency, potentially addressing both public interest concerns and operational effectiveness.
Performance-based management contracts could introduce market discipline while maintaining state ownership. Setting clear financial and social objectives, with professional management accountable for results, might improve outcomes without complete privatization.
Selective privatization focusing on clearly commercial activities while retaining state control over genuinely strategic assets represents another viable approach. This would allow market forces to operate where appropriate while preserving government influence over critical national infrastructure.
Moving Forward: Balance and Accountability
The debate over Sri Lanka's state enterprises ultimately centers on finding the optimal balance between public interest and operational efficiency. Neither blind privatization nor continued acceptance of losses serves the national interest effectively.
Improved governance structures, professional management, and clear performance accountability could transform existing state enterprises without necessarily changing ownership. Regular performance reviews, transparent reporting, and consequences for persistent underperformance would create incentives for better management.
The 18 loss-making enterprises among Sri Lanka's major state-owned companies represent both a challenge and an opportunity. With proper reforms focusing on governance, accountability, and strategic clarity, these entities could transition from public burdens to valuable national assets.
Success will require political will to implement genuine reforms, professional management free from political interference, and clear metrics measuring both financial performance and social objectives. Only through such comprehensive reform can Sri Lanka's state enterprises fulfill their potential as contributors to national development rather than drains on public resources.