from SOEs. Not only does it cause SOEs to underperform by reducing market pressures on SOE managers (Jensen 1986; Maskin and Xu 2001), but it also enables debt to build up in loss-making SOEs. The constrained environment of SOEs could also temper the effectiveness of internal SOE reforms. For example, Berkowitz, Ma, and Nishioka (2017) argue that the apparent efficiency gains from SOE corporatization in China were in fact due to a contemporaneous tightening of their operating environment. Bartel and Harrison (2005) show that the effectiveness of partial SOE privatization in Malaysia depended on external factors such as access to soft loans. Policy lessons and implications. The most immediate policy lesson of our analysis is that the contingent liabilities from SOEs are nontransparent, and policy makers in South Asia are not paying enough attention to them. Given the limitations of publicly available data, it is difficult to quantify even SOEs’ total liabilities or debt, much less their explicit and implicit government commitments. Governments must better assess and monitor the fiscal risks from SOEs, incorporate them into their fiscal planning and debt management, and make funding provisions so that SOE distress and rescue, when justified, does not entail serious disruptions to critical public spending. The deeper policy question is how to mitigate unnecessary contingent liabilities stemming from SOE operations. The evidence presented in this chapter leads us to recommend a combination of internal reforms at the SOE level and external reforms in the operating and broader controlling environment. These reforms are discussed in the final part of the chapter.
Describing the Opaque and Complex SOE Sector in South Asia Using Data Analyses Must Cope with a Lack of Data about South Asian SOEs This chapter relies mainly on publicly available official reports and statistical tables to present stylized facts about the SOE sector in
SOUT H A SI A ’ S ST A TE - OWNED ENTER P RISES
various South Asian countries, such as its size, performance, and liabilities. • India. The main official data source for Indian CPSEs are annual reports on CPSEs published by the Department of Public Enterprises. Data on SOEs owned by the state governments of India (state public sector enterprises, SPSEs) are less easily available. Our main data sources were state-level SOE audit reports published by the Comptroller and Auditor General of India (CAGI). • Pakistan. Data on Pakistani SOEs are from the annual Federal Footprint: SOEs Annual Report, published by the Ministry of Finance. • Sri Lanka. Sri Lankan data are from the annual SOE Performance Report, published by the Department of Public Enterprises, and from the Annual Report of the Ministry of Finance. These data were supplemented by a publicly available database compiled from various government reports by the independent think tank Advocata Institute. • Bangladesh. Bangladesh does not produce annual SOE reports. Our data for Bangladesh are based on the statistical tables published in the annual Bangladesh Economic Review, produced by the Ministry of Finance. • Bhutan. Data on Bhutanese SOEs are from the State Enterprises Annual Report, published by the Ministry of Finance. Annex 3A lists these data sources and the country-specific definition/categorization of SOEs used in this report. The data available in these official reports are generally at an aggregate level. India, Pakistan, and Sri Lanka have been publishing SOE-level revenue and balance sheet data in recent years. However, data for only a limited set of variables are available. For example, it is not always possible to measure value added and profits or to obtain SOElevel information on government support. India publishes firm-level data on CPSEs, but not SPSEs. This gap is worrying because much of the debt and accumulated losses reside in SPSEs.
103
