The country’s state-owned enterprises (SoEs) are not in a good state. At a meeting between the finance ministry that governs SoEs and the heads of SoEs, what came out was that there are more challenges than opportunities.
The meeting was intended to strengthen a collaborative approach and how and where SoEs would focus in contributing revenue to the government post Covid-19. There was not much to offer although the 14 SoEs have grand plans and strategies to cope with the pandemic and beyond.
The reality is that with or without the pandemic, except for a few, most of the SoEs are not doing financially well. Those heavily dependent on government subsidy, which is declining every year, are worried about sustainability. With social mandates from providing cheap loans without enough liquidity to greening the country and ensuring food security, contributing revenue to the government coffer is an uphill task, at least for a few more years. The environment in which they function and regulations limit their scope. Some are still waiting for the promised start-up capital.
Some SoEs would need time to reap benefits on their investments. For instance, the Green Bhutan Corporation would not see its plantations bear fruit for years. Even the fastest growing plant, bamboo would need five years to be ready for harvest from their plantation. Their contribution to the environment cannot be monetised. As a country championing environment conservation, the SoE is playing a crucial role from providing seedlings to increasing greenery.
Strategies like introducing good corporate governance systems, although important, cannot change them overnight given their important and expensive social mandate. However, the government cannot subsidize SoEs forever and strategies are needed to make them sustainable and profitable. The pressure on generating revenue is increasing and with the country poised to graduate from the club of least developed countries, there will be more pressure on domestic revenue.
Bhutan may be well on track to graduate, but we have failed to meet one of the three criteria – the Economic Vulnerability Index (EVI). As of last year, with an EVI score of 25.7, we are well below the graduation threshold of 32. The graduation thresholds must be met for any two of the three criteria—Gross National Income (GNI) per capita, Human Assets Index (HAI) and EVI—in two consecutive triennial reviews. We could still qualify by meeting the two other criteria, but being vulnerable economically is a huge risk. Development partners and donor countries would prioritise LDC over Bhutan.
There will be pressure on all sectors to generate revenue and SoEs are asked to strategise. Some discussions at the meeting are encouraging. A collaborative approach in charting out new strategies not only in ensuring sustainability and profitability could be a way forward. The National Pension and Provident Fund, clubbed as a SoE, has money and no avenues to invest. Other SoEs are short of funds and resort to expensive loans. NPPF investing in other SoEs could be a win-win situation and reduce the burden on the government exchequer.
Another strategy could be divesting to maximise the value of the companies. Not all SoEs could attract investments because of the huge social mandate or by law, but those with scope for divestment should be encouraged to do so.
All the 14 SoEs are more than five years old and are clear about the opportunities and challenges. Like some pointed out in the meeting, it is also high time to relook into the SoEs. Do we need all the 14 SoEs? Can they be better with divestment? Should we close down, merge or let the private sector take over? The questions are many.