Advocata Institute commends Cabinet decision to close 33 non-operational SOEs

THE Advocata Institute has welcomed the decision by the Cabinet of Ministers, on the proposal of President Anura Kumara Disanayake in his capacity as Minister of Finance, Economic Stabilisation and National Policy, to formally close 33 nonoperational State-Owned Enterprises (SOEs) under Phase 2 of the Government’s state-sector reform program.

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national interests. State ownership is warranted only where there is a clear economic or strategic justification—typically when market failures prevent private actors from efficiently providing goods or services. The number of entities retained as SOEs should therefore be significantly reduced, focusing solely on those that are strategically important or justified by clear economic, strategic, or development objectives.

Ensuring competitive neutrality

While closures are essential, reform must also correct distortions due to a lack of competitive neutrality— the principle that all firms should compete on equal terms. SOEs that still hold significant positions in their markets, often enjoy State guarantees, preferential finance, or regulatory exemptions unavailable to private competitors. These privileges distort markets, crowd out private investment, weaken productivity growth and reduce efficiency across the economy. Addressing these horizontal effects is critical.

Competitive neutrality means that all enterprises, public or private, compete on the same terms, without hidden subsidies or privileges. To restore a fair playing field, SOEs must operate without hidden advantages, face hard budget constraints, and earn at least their cost of capital. Separating commercial from noncommercial activities and transparently compensating public service obligations are also essential to prevent cross-subsidisation.

Impacts on downstream and upstream industries