In next year’s (2026) Budget that has been presented, the Government has allocated Rs. 5 billion to settle the outstanding arrears of statutory payments – Employees’ Provident Fund (EPF), Employees’ Trust Fund (ETF), gratuity allowances and taxes – owed by 10 State-owned enterprises (SOEs). The total arrears stand at Rs. 11 billion, a staggering amount that shows the deep financial struggles faced by these institutions. Among these SOEs are notable entities like the Lanka Sugar Company Limited, the State Plantations Corporation, the Rupavahini Corporation, the Ceylon Fisheries Corporation, the National Livestock Development Board, and the Broadcasting Corporation.

The Government’s intention, as highlighted in the Budget speech, is to consider these payments as an ‘urgent need’ to prevent further harm to workers’ livelihoods and the national economy. However, there is a significant concern that the allocation of funds will do little more than buy temporary relief unless the underlying issues contributing to the financial mismanagement of these SOEs are addressed. Allocating money from the national Budget to settle overdue payments owed to employees and the tax authorities appears to be a necessary and urgent step. However, there is a question as to whether this is the best way to do it.

The fact that the Government has to step in with a Budgetary allocation to settle these arrears shows a deeper crisis within these institutions. It is not merely a question about insufficient funds but also of mismanagement, be it corruption, the misallocation of resources, unsustainable operational practices, poorly executed projects or external factors to which these SOEs are vulnerable. In this context, unless the root causes of this crisis are addressed, this Budgetary support is unlikely to change anything, and worse, future Governments may decide to adopt similar approaches.

The question is whether it is justifiable for taxpayers to bear the burden of saving SOEs that have failed to meet their legal obligations. Taxpayers, who are themselves struggling with inflation and taxes, should not be expected to repeatedly support consistently mismanaged SOEs. While it is understandable that the Government has a responsibility to protect the livelihoods of these SOEs’ employees, there needs to be a comprehensive plan to rectify the causes of these financial failures. However, the Budget speech did not provide concrete measures to tackle the structural issues in this SOE crisis. What happens once the Rs. 5 billion is exhausted and these SOEs are still prone to financial mismanagement?

For this support to be sustainable, the Government must take more rigorous and comprehensive steps to address the root causes of these SOEs’ failures. It is true that the Government has decided to liquidate 33 inactive SOEs, which is a positive move towards reducing inefficiency within the State sector. However, the decision to financially support these SOEs also needs to be more scientific and backed by a broader reform plan. The Government should investigate the specific reasons behind the financial difficulties of the 10 SOEs in question. Is it poor management, wasteful spending or corruption and whether there are specific individuals or systemic issues at play, are concerns that the Government needs to look into before providing the abovementioned financial support. Holding those responsible accountable for these failures is also crucial if the Government is to prevent this situation from recurring.

Moreover, a long-term plan should be in place to ensure that once these SOEs are provided with financial support, they are able to operate sustainably. This should involve introducing effective governance mechanisms, reducing wasteful practices and aligning the objectives of these institutions with national policies. At the same time, a system of accountability should be put in place to prevent future failures to pay the EPF, the ETF, gratuity and tax dues. Without these crucial steps, the Rs. 5 billion allocated in the Budget may simply be a temporary fix that fails to address the real issue. It would be shortsighted for the Government to merely approve these payments without addressing the underlying inefficiencies, corruption, mismanagement and weaknesses that have led to this situation.