Public enterprises — passive for how long?

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| Updated:
01 July 2022 21:31:05


It may seem intriguing to learn that public enterprise (EP) lending hit an all-time high at 926.01 billion taka. A report by FE the other day expressed concern that in the current period of inflationary pressure, the lending burden of these companies could soar further. According to the report, the debt burden of state-owned enterprises, following a 25% increase in their state-guaranteed loans, is having a negative financial impact on the state coffer. The borrowings mainly relate to guarantees provided for 18 major project guarantees for power generation projects, the sources said.

The government issues sovereign guarantees to state-owned enterprises to help them borrow funds to manage and expand their operations, as the organizations cannot obtain loans on their own due to their poor financial situation. Local and international financiers seek such guarantees from the government to grant loans. With us, it is the public banks that grant the loan. Among the international organizations that need such guarantees are financial institutions, mainly banks. In the wake of the surge in loans, the question that automatically comes to mind is: what good are the guarantees, if the loans thus obtained continue to swell without return?

The fact that state enterprises are not doing well is not surprising news. It has been a sad reality for decades, a burden that successive governments have only hesitantly attempted to resolve. The situation of all public enterprises is more or less similar. Losing the concerns as they are, it is often thought that utter neglect mainly contributed to making them what they are now – ineffective and useless. One of the ways to reorganize them could be to modernize them in order to make them competitive in local and foreign markets. Makeshift efforts in the past without an effective stimulus package backed by adequate funds have only increased government liability for decades. The other solution, perhaps the only one, according to many, in the circumstances, is to let the companies gradually pass into private hands. The process of changing hands, i.e. privatization, has been in place for some time, but an evaluation of privatization clearly shows that in addition to being time consuming, it is a heavy strewn with obstacles that cannot be solved by dull measures. There are instances where the sale process has become bogged down in disputes over assets, land valuation, title deeds and various claims by the line ministry after a takeover bid has been accepted. There are also cases of conflicts of interest involving line ministries that would like to retain control of public enterprises. Added to this is political interference, which causes not only inordinate delays but also frustration among private parties eager to take over. But if the government is firm in its decision, it can make things happen.

In the state of things, isn’t it wise to find a way out to get rid of the undesirable liabilities? According to observers, it is high time the government realized that spending huge sums just to keep these entities alive, even in intensive care, does not make sense.

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