Papageorgiou said Sri Lanka must remain committed to the core goals of its $3 billion IMF Extended Fund Facility, which include enhancing transparency, resolving legacy debt, and ensuring cost recovery in pricing to maintain the financial viability of state enterprises.

The International Monetary Fund’s (IMF) newly appointed Mission Chief for Sri Lanka, Evan Papageorgiou, has called for accelerated reforms of the country’s debt-ridden state-owned enterprises (SOEs), expressing concern over delays and policy reversals under the new government.

At a virtual press briefing held Tuesday, Papageorgiou emphasized that while Sri Lanka has made some progress, the pace of reform needs to increase, particularly in addressing the longstanding financial troubles of major SOEs like SriLankan Airlines, Ceylon Petroleum Corporation (CPC), and the Ceylon Electricity Board (CEB).

“The current budget has earmarked 20 billion rupees to pay off some of the airline’s debt, and a financial advisor has been hired to restructure international bonds,” Papageorgiou said. “These are steps in the right direction, but they need to pick up a bit more pace.”

His comments come in the wake of political shifts that have disrupted previous reform strategies. The new administration under President Anura Kumara Dissanayake has halted privatization efforts initiated by the previous government, led by Ranil Wickremesinghe, which had aimed to reduce the state’s stake in loss-making enterprises.

Dissanayake’s party, known for its anti-privatization stance, reversed plans to divest key SOEs, including SriLankan Airlines, promising instead to introduce alternative reform strategies. The government has since formed a committee to review a new “State Commercial Enterprises Management Draft Bill,” aimed at depoliticizing SOE governance and ensuring appointments of qualified professionals to leadership roles.

Remain Committed to Core Goals

Despite these moves, Papageorgiou said Sri Lanka must remain committed to the core goals of its $3 billion IMF Extended Fund Facility (EFF), which include enhancing transparency, resolving legacy debt, and ensuring cost recovery in pricing to maintain the financial viability of state enterprises.

“Sri Lankan authorities have shown commitment to strengthening governance in SOEs,” he said. “But progress is uneven, and we want to see more done, particularly in implementing cost-reflective pricing and addressing fiscal risks.”

The IMF has consistently highlighted the financial burden Sri Lanka’s over 400 SOEs place on public finances. Many of these entities operate at a loss and depend on government bailouts and subsidies, a major factor behind the 2022 sovereign debt default that triggered an unprecedented economic crisis.

Reforming these institutions is central to Sri Lanka’s economic recovery and its broader agreement with the IMF. One key concern, Papageorgiou noted, is the issuance of government guarantees for SOEs, which continue to pose fiscal risks.

“Under the EFF program, we’ve set indicative targets, including ceilings on total and foreign currency treasury guarantees for SOEs,” he said. “We’re also asking that non-financial SOEs with limited foreign exchange revenues refrain from new foreign currency borrowing.”

Such measures aim to reduce what he described as “wrong-way risk” – the accumulation of debt in foreign currency by institutions with no reliable means to repay it, Papageorgiou said.

Transparency has also become a cornerstone of the IMF’s push for reform. The organization has mandated the timely publication of audited financial statements for the 52 largest SOEs as a way to ensure public accountability and oversight.

“This helps bring more light and greater scrutiny to how these entities operate,” Papageorgiou said. “Consumers deserve value for the price they pay, whether it’s electricity, fuel, or airline services. And SOEs, just like private companies, must run efficiently, commercially, and free of corruption.”

Honouring Public Resistance

The IMF’s warning highlights the balancing act the Dissanayake government faces as it tries to honour public resistance to privatization while also meeting the stringent reform criteria tied to the EFF program.

Analysts suggest that stalling reforms could jeopardize future tranches of IMF funding and potentially delay Sri Lanka’s return to financial stability. The fourth review under the IMF program is seen as a key milestone in assessing whether Sri Lanka can sustain its fiscal consolidation and restructuring agenda.

The government, for its part, has reiterated its commitment to reform but has insisted on a “home-grown” approach that preserves national assets and avoids outright privatization. Officials say the new draft bill on SOE management reflects that intent, aiming to eliminate political interference while steering loss-making institutions toward viability through professional governance.

While this shift in approach has slowed momentum, Papageorgiou remained cautiously optimistic.

“There is a way forward,” he said. “We just want to see more tangible progress.”

A business editor with a Sri Lankan daily newspaper said, “As Sri Lanka continues to navigate its economic recovery path, all eyes will be on how the government manages to implement meaningful changes in SOEs without triggering political backlash or derailing its international commitments.”