Growing SoE losses to put govt banks under pressure

Shakhawat Hossain     | Published at 12:30am on July 04, 2019

The state-owned enterprises that suffered Tk 4,155.53 crore losses in the just- concluded fiscal year due largely to mismanagement will continue their losing streak in the new fiscal year keeping the government banks under pressure.    

The loss of the 49 SoEs has been projected to be Tk 5,350.23 crore in 2019-20 by the Finance Division in a budget document, for which experts fear that the liquidity crunch in the cash-strapped state-owned banks might worsen in the new fiscal year beginning July 1.

Centre for Policy Dialogue distinguished fellow Mustafizur Rahman pointed out that continued losses did not enable them to pay back their loans they took from the state-owned banks.

Losses of the SoEs forced the government to provide them with bailout in the form of fresh loans and subsidies, he said.

He noted that this process eventually caused further growth in the outstanding loans of the SoEs to the loss-making government banks including the Sonali, Janata and Agrani banks.

According to the Economic Survey 2019, the outstanding loans of the SoEs stood at Tk 39,834.58 crore as of January 2019, mostly to the state-owned banks, which were plagued by nonperforming loans owed by wilful defaulters of the private sector.

The amount of SoEs’ outstanding loans as of June 2018 was Tk 33,454.31 crore.

According to the brief budget of the SoEs for 2019-20, the Bangladesh Power Development Board that incurred the highest loss of Tk 10,271.58 crore in the outgoing fiscal year (till April 30) will face a loss of Tk 8,718.9 crore in the new fiscal year.

The PDB’s loss has largely been attributed to the power purchased from dozens of rental and quick-rental power plants run on costly fuel oils and to mismanagement.

The PDB loss can easily be reduced by a substantial amount if the government generates power at the gas-based power plants instead of buying it from the controversial private-sector power companies approved on political consideration.

The outstanding PDB loans as of January 2019 stood at Tk 11,420 crore.

Former caretaker government adviser and a senior economic analyst Mizra Azizul Islam said that the losses of the SoEs were not only aggravating the financial health of the government banks but were also failing to contribute to the national exchequer.

He noted that state-owned companies were a prime source of non-tax revenue in many countries.

But, he pointed out, corruption, irregularities and political influence forced the local entities to incur huge losses every year, let alone contribute to the exchequer.

Experts recommend that the government should carry out reform of the SoEs to check their losses. 

But no reform was undertaken in the past one decade although reform is imperative, said Policy Research Institute executive director Ahsan H Mansur.

The experts argue that the much-needed reform will bring out the actual reasons for the losses being incurred as there is no justification for misusing the public fund.

Besides PDB, other major loss-making entities are Bangladesh Textile Mills Corporation (Tk 24.61 crore loss in 2018-19), Bangladesh Sugar and Food Industries Corporation (Tk 981.96 crore loss in 2018-19), Bangladesh Chemical Industries Corporation (Tk 911.43 crore loss in 2018-19) and Bangladesh Jute Mills Corporation (Tk 695.13 crore loss in 2018-19).