The financial position of most of the state-owned enterprises (SOEs) has been described as weak as most of them are operating at a loss due to high administrative costs, below market charges for their services as well as inefficient management and poor governance. This is according to the Fiscal Strategy Statement (FSS), 2020-2022, where the Ministry of Finance stated that some of them owe debts to the domestic banking system and external private and public creditors. “Most of them cannot service the external debts on-lend to them by the Central Government (SALCAB and SIERRATEL).” The FSS went further to state that state-owned banks are saddled with high levels of non-performing loans, whose provision has eroded their capital base over the years. The banks, in particular it says require bailout in the form of recapitalization by the Government. In addition, the utility companies such as Electricity Generation and Transmission Company (EGTC), Electricity Distribution and Supply Authority (EDSA), GUMA and SIERRATEL and the Sierra Leone Road Transport Corporation (SLRTC) it revealed cannot cover their respective costs of production due to inefficient management and poor business models. These SOEs they say are not ‘financially and operationally sustainable’, resulting in poor service delivery. “They have not been able to pay dividends to Government instead they rely on subsidies from the Government” it stated. The Ministry noted that the continued weak financial operations of these SOEs poses a major fiscal risk to Government in the form of subsidies and or transfers as in the case of EDSA, EGTC, SLRTC and GUMA and recapitalization in the case of the state-owned banks.
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“The amounts involved are high and could derail the implementation of the Government budget” it added. The Ministry identified certain risks to the implementation of the Budget and for the 2020 Budget, the increase in subsidies to EDSA and other SOEs have been recognized. The estimated liabilities as at end 2018, is approximately Le1.5 trillion for SOEs. Between January and September 2019, the Government provided Le98.7 billion as subsidy to EDSA to ensure the sustainable supply of electricity. Should the current trend continue, the Ministry says EDSA would require about Le311 billion in subsidies for the 2020 fiscal year due to technical and non-technical losses. “This is clearly not fiscally sustainable.” So, consistent with the Public Financial Management Act 2016, the Ministry will continue to strengthen the fiduciary oversight of SOEs and management of fiscal risks with the view to reducing the burden on the budget. However, a Fiscal Risk Committee comprising high-level public officials, drawn from relevant MDAs and the Bank of Sierra Leone will be constituted.
By Zainab Iyamide Joaque
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