Regulatory Reforms in Post-conflict Sri Lanka: Breaking the Cycle?

Sri Lanka’s state-owned enterprises (SOEs) play a significant role in the country’s socioeconomic development trajectory. Despite decades of analysis and reform efforts, SOEs continue to have outsized fiscal and political impacts on the country. The analysis suggests that privatization is not a panacea for the problems afflicting SOEs. In the absence of sound regulation, the sale of assets may well maximize rents to politicians and investors at the expense of the public interest. The post-conflict period provided a fresh opportunity to embark on meaningful public enterprise reforms. However, these years have witnessed only halfhearted attempts at reforms aimed at inclusive development, pointing to the embeddedness of and interaction between extractive economic and political institutions. As this chapter discusses, such reforms have not produced meaningful results, primarily due to Sri Lanka’s bipolar political regime and the failure to undertake essential governance changes. This chapter reviews recent developments in SOE reform, analyzes political economy considerations, and proposes limited, and more achievable, institutional reforms to reset the public enterprise reform process.