Shrouded in secrecy, SOE profits are not financing country’s development

Reallocation of excess savings from Myanmar Gems Enterprise (MGE) and Myanma Oil and Gas Enterprise (MOGE) alone could provide more than K2.8 trillion in available financing for the government’s budget in the fiscal year starting from October, on top of covering expenses of the two state-owned enterprises.

The government has lost more than US$2 billion over the last 36 months because of the way state-owned enterprises are run in Myanmar, according to a new report.

Yangon-based Renaissance Institute and Natural Resource Governance Institute published the report “State-owned Economic Enterprise Reform in Myanmar: The Case of Natural Resource Enterprises” last week. The publication revealed that state-owned enterprises (SOEs), including Myanmar Gems Enterprise and Myanma Oil and Gas Enterprise (MOGE), have stored an accumulative profit of K11.45 trillion ($8.6 billion) in the state bank without interest and in the national currency. As the kyat is depreciating in real terms (since early 2015, the kyat-dollar exchange rate has weakened by more than K400) and the $8.6 billion cannot be invested in interest-accruing foreign assets, these SOEs have lost more than $2 billion in purchasing power over the last three years. All of that money could have been spent on supporting the country’s infrastructure and social services.

“By our estimate, reallocation of excess savings from MOGE and MGE alone could provide more than K2.8 trillion in available financing for the Union budget in this coming fiscal year without jeopardising their ability to cover legitimate expenses.

“Allowing SEEs to retain such large cash holdings comes at a significant opportunity cost in terms of foregone spending on social services and infrastructure,” the publication pointed out.

Writing in The Myanmar Times yesterday, Andrew Bauer, NRGI consultant and one of the co-authors of the report, labelled these entities “black boxes”, with their activities and finances “shrouded in secrecy”. SOEs in Myanmar are governed by the 1989 State-owned Economic Enterprises (SEE) Law, which handed monopoly powers for SOEs over a number of sectors, yet does not clarify their roles or responsibilities. A new SEE law would provide statutory clarity to management of these entities. Legislations which prevent disclosure of crucial information to supervisory bodies should also be amended.

But reforming the legal framework is only part of the necessary measures. The report also suggested the government to require that SOEs articulate their strategic objectives and performance targets, strengthen oversight and demand much greater disclosure of their financial information and activities.

Speaking to The Myanmar Times yesterday, Mr Bauer reiterated two key issues – the misallocation of money collected by state-owned enterprises to the Myanmar Economic Bank (MEB) at the expense of spending on healthcare, education and infrastructure through the normal budget process, as well as the continued inefficient, opaque and unaccountable management of many SOEs, leading to high costs, lower than expected revenues and unclear contracting.

“With regard to the allocation of money collected by state-owned enterprises, we think a better way to manage this money would be by transferring a much larger proportion or even all of it to the treasury rather than earmarked accounts of SOEs in the MEB. That way the government can spend it according to the country’s needs and the Hluttaw and the public can better oversee how the money is being used,” he commented.

Three sets of reforms

The governance expert highlighted three sets of reforms suggested by the report.

Firstly, it is crucial to review and assess all of the government’s SOEs. Some are business-oriented entities, as SOEs “ought to be”, while others are simply regulators, tax collectors or public service providers. “These different types of ‘enterprises’ should not be treated the same way. The government could find out what each of these does, then re-categorise them according to their roles and responsibilities.”

The second recommendation is to transfer “a much larger share of money collected by SOEs” to the treasury instead of the MEB. This would enhance the transparency and accountability of government spending. The report argued that the amount that SOEs would retain or be allocated from the budget would be a function of their strategic needs and the remainder would be transferred to the government to be spent on social services and infrastructure for the benefit of the people. Excess savings could be invested in interest-accruing foreign assets, while account information could be published online.

In addition, Nay Pyi Taw can do much to improve SOE performance. For example, enterprises can publish audited financials and annual reports on their activities. The finance ministry, the legislature and other government bodies can be empowered to better oversee their operations. “We are making these suggestions because state-owned enterprises manage public money and, as such, should be accountable to the public,” Mr Bauer stated.

He added that privatisation “could be one option for some SOEs or some of their firms or departments, but it is not the only solution and certainly not the solution for all enterprises.”

“Before considering privatisation, it is important to better understand what SOEs actually do. It is also important to understand their markets and whether or not the government has a role to play in those markets,” the expert explained.

Source: Myanmar Times

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