State-Owned Enterprises in the Time of COVID-19

IMF Blog, May 7, 2020

Source details

Canonical URL: State-Owned Enterprises in the Time of COVID-19

Other formats

Bibliographic details

Authors: the government, some are jointly owned with private investors.
Published: May 7, 2020

Role of state-owned enterprises during the pandemic

State-owned enterprises (SOEs) can be public utilities providing essential services (water, electricity, transportation) or public banks providing loans to small businesses.
Some SOEs are struggling and adding to the burden on government finances, including national oil companies facing a large fall in oil prices and national airlines without enough passengers.
Governments have asked public banks in Brazil, Canada, Germany, and India to help alleviate the impact of the current pandemic.

Scale and scope

SOEs’ assets are worth $45 trillion, equivalent to half of global GDP.
SOEs undertake 55 percent of total infrastructure investment in emerging and developing economies.
The share of SOEs among the world’s 2000 largest firms doubled to 20 percent over the last two decades.
In some countries, like China, Germany, India, and Russia, SOEs number in the thousands.
SOEs are present in all countries and some are multinationals operating around the world.

Access, mandates, and funding gaps

SOEs were created to meet goals governments deem socially or economically necessary (provision of water, electricity, transportation) but mandates are often not appropriately funded.
Consequences of underfunded mandates include insufficient service delivery: more than 2 billion people remain without access to safe water and more than 0.8 billion lack reliable electricity.
Proper funding is critical in responding to crises so that public banks and utilities can provide subsidized loans, water, and electricity.

Governance, transparency, and fiscal risk

Many governments lack the capacity to effectively monitor SOEs.
Poor transparency in public banks’ and enterprises’ activities remains an obstacle to accountability and oversight.
Hidden debts can build up, with governments having to bail out SOEs, sometimes costing taxpayers more than 10 percent of GDP.
Empirical performance: drawing from a sample of about 1 million firms in 109 countries, SOEs are less productive than private firms by one-third, on average.
Governance matters: productivity of SOEs in countries with perceived lower corruption is more than three times higher than those in countries where corruption is seen as severe.
Internationalization of SOEs raises concerns about unfair advantages (government support, cheap loans, tax benefits) and could fuel protectionist measures.

Policy recommendations (four main recommendations)

Regularly review the need for and value delivered by an SOE:
- Example: Germany conducts biennial reviews.
- The case for SOEs in competitive sectors (such as manufacturing) is weaker because private firms usually provide goods and services more efficiently.
Create the right incentives for managers and strengthen government oversight:
- Full transparency in SOE activities is paramount to improve accountability and reduce corruption.
- Including SOEs in the budget and debt targets would create greater incentives for fiscal discipline.
- Examples of practices in place: New Zealand.
Ensure adequate funding to meet economic and social mandates:
- Example: Sweden.
- Proper funding is critical for crisis response and for promoting development goals.
Ensure a fair playing field between SOEs and private firms:
- Limiting preferential treatment of SOEs can foster greater productivity and avoid protectionism.
- Examples of limits: Australia and the European Union.
- A potential global way forward is to agree on principles to guide SOEs’ international behavior.

Stakes and conclusion

Well-governed and financially healthy SOEs can help combat crises such as the pandemic and promote development goals.
Many SOEs need further reforms; without them, the costs to society and the economy can be large.

Source: State-Owned Enterprises in the Time of COVID-19 (May 7, 2020) — https://www.imf.org/en/blogs/articles/2020/05/07/blog-state-owned-enterprises-in-the-time-of-covid-19

State-Owned Enterprises in the Time of COVID-19

Source details

Other formats

Bibliographic details

Role of state-owned enterprises during the pandemic

Scale and scope

Access, mandates, and funding gaps

Governance, transparency, and fiscal risk

Policy recommendations (four main recommendations)

Stakes and conclusion

References