SOUT H A SI A ’ S ST A TE - OWNED ENTER P RISES
FIGURE 3.8 Share of Persistently Distressed Firms in India, 1991–2017 60 50
Percent
40 30 20 10 0 1991
1993
1995
1997
1999
2001
2003 CPSEs
2005
2007
2009
2011
2013
2015
2017
Non-SOEs
Source: Melecky, Sharma, and Yang 2020. Note: The excess distress rate is the gap in distress incidence between CPSEs and non-SOEs. The figure shows the percent of firms with an interest coverage ratio (ICR) of less than 1 in three consecutive previous years. CPSEs = central public sector enterprises; SOEs = state-owned enterprises.
The “raw” excess distress rate in CPSE— that is, without adjusting for size and other attributes—is 14.5 percentage points (column 1). This estimate is roughly consistent with figure 3.7. Adding the size control makes a difference, with the CPSE gap in distress incidence rising to 20.7 percentage points. Larger firms tend to have lower distress rates, and hence the CPSE gap becomes larger once we adjust for the fact that CPSEs are larger than the average non-SOEs. While this result does not imply a causal relationship between ownership and distress, it suggests that the higher vulnerability of CPSEs can be explained only by factors other than size, age, and sector. Next, we interact the CPSE indicator with broad sector dummies to examine whether the excess distress rate of CPSEs is higher in particular sectors (column 4). We find that relative to CPSEs in transport and services (the omitted sector dummy), those in the manufacturing sector are more prone to excess distress, while those in the petroleum industry are less prone. The patterns shown in table 3B.2 hold true even when we use more persistent distress measures (such as ICR being less than 1 in two or three consecutive years). For
example, controlling for size, age, and sector, CPSEs are 21 percentage points more likely to be in distress in two consecutive years (column 5).
The Likely Magnitude of Contingent (Potential) Liabilities from SOEs Must Be Established The total liabilities of SOEs are quite large. As shown in figure 3.9, the total liabilities of SOEs in Sri Lanka exceeded 10 percent of GDP and were 20 percent of GDP for SOEs in Pakistan and CPSEs in India in 2017. While the total liabilities of Indian SPSEs are not available for recent years, their total debt (a component of total liabilities) amounted to 4 percent of GDP in 2017. If we assume that their ratio of debt to total liabilities is the same as that of Indian CPSEs, then their total liabilities amount to 8 percent of GDP. The total SOE liabilities in Bangladesh are about 6 percent of GDP, reflecting the smaller size of its SOE sector. Government guarantees on SOE loans have turned a portion of these liabilities into an explicit contingent liability of South Asian governments. For example, in 2017, the stock of SOE debt with a government guarantee
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