reassessing the role of state ownership in central, …ukr kos-5 0 5 10 15 20 25 0 20 40 60 80 100...

June 2019

Reassessing the Role of State Ownership in Central, Eastern, and South Eastern Europe

IMF – EBRD

* The analyses, opinions, and findings represent the views of the authors, which are not necessarily those of the IMF, its Executive Board, IMF management, the EBRD, its Executive Board, or EBRD management.

IMF European Department Staff & EBRD Staff

INTERNATIONALMONETARY FUND

IMF – EBRD

Motivation

• Renewed interest in the state’s role in the economy.• Recognition privatization isn’t the only answer, need

to improve performance in remaining SOEs and SOBs.

• Search for growth post-GFC puts more focus on whether SOEs and SOBs can be a source of growth or further drag.

2

IMF – EBRD

Questions the paper poses

• How important are SOEs and SOBs in CESEE?• What is their performance compared to private firms?• What are the financial links between SOBs and SOEs?• Are stated objectives of SOEs and SOBs being met?• What is the state of governance frameworks?• What lessons are there for the future?

3

4IMF – EBRD

What we think SOEs are…

What they actually are…

5IMF – EBRD

IMF – EBRD

State footprintState Owned Enterprise prevalence

(Per million inhabitants)State Owned Bank prevalence

(Percent banking assets)

6

Note: 2016.Sources: National authorities, Fitch, IMF staff calculations.

0

400

200

IMF – EBRD

SOEs: Significant variation across sectorsContributions to selected sectors (percent of the sector)

7

Notes: 2016; 1/ data for 2015; 2/ Turnover; 3/ data for 2017. Data for other countries not available.Sources: National authorities, IMF staff calculations.

BLR

RUSPOL

SRBSVN

HRV

ALBBIH

UKRROU BGR

LVA

HUN

LTU

MKDCZE

SVKBIHBGRHRV

CZEHUN

MKD¹

POLROU²

RUS

SRB

UKR³

RUS

POL

BGRSRBLVAROUHRVHUN

BIHSVKLTUALB CZEMKD0

5

10

15

20

25

30

35

0 5 10 15 20 25 30

SOE

Shar

e of

Valu

e Ad

ded

SOE Share of Total Employment

AggregateManufacturing

Services

IMF – EBRD

Lower profitabilitySOE median ROE

(Percent of private sector median ROE)Bank ROA

(percent of total assets)

8

Note: LHS: 2014-16; RHS: 2006-16.Sources: Orbis, Fitch, IMF staff calculations.

0

10

20

30

40

50

60

70

80

SVK

HUN ES

T

HRV CZ

E

RUS

POL

ROU

BGR

SVN

SRB

LVA

UKR

MKD

-1.0

-0.5

0.0

0.5

1.0

Private banks State Owned Banks

IMF – EBRD

Driven by differences in revenue and expensesRevenue per employee

(Percent of SOEs above private sector median)Revenue components of ROA

(Percent of total assets)

9

Note: LHS: 2014-16; RHS: 2006-16.Sources: Orbis, Fitch, IMF staff calculations.

-2

-1

0

1

2

3

4

5

6

7

8


Net interest

Net fees

Other

0

10

20

30

40

50

60

70

UKR

POL

MKD SR

B

ROU

CZE

HRV BG

R

RUS

LVA

SVN

HUN SV

K

EST

IMF – EBRD

Driven by differences in revenue and expensesSOE wage premium

(Percent of average private sector wage)Expense components of ROA

(Percent of total assets)

10

Notes: LHS: 2016; 1/ data for 2017; RHS: 2006-16.Sources: Country authorities, Haver Analytics, Fitch, IMF staff calculations.

100

110

120

130

140

150

160

170

180

190

ROU

KOS

BIH

UKR¹

HRV AL

BSR

BLT

ULV

ASV

NBG

RCZ

EPO

LES

TSV

KH

UN

-8

-7

-6

-5

-4

-3

-2

-1

0

1


Provisioning

Wages

Other opex

IMF – EBRD

SOEs: Low productivity driven by labor misallocation

Productivity (Percent of average private firm productivity)

SOEs that should decrease labor inputs(Percent of SOEs)

11

Notes: 2014-16.Sources: SBRA, IFP, CSB, LB, IMF staff calculations.

-30

-25

-20

-15

-10

-5

0

Serbia Slovakia Latvia

0

10

20

30

40

50

60

70

80

90

100


IMF – EBRD

TFP by Firm Ownership(density log TFP)

12

Sources: Orbis, IMF staff calculations, IMF Country Report No. 19/38.

Poland: SOE productivity gap

IMF – EBRD

Raising efficiency to private levels = output gainsSOE output effects

(Percent of SOE output)Aggregate output effects

(Percent of GDP)

13

Note: 2014-16.Sources: SBRA, IFP, CSB, LB, IMF staff calculations.

0

2

4

6

8

10

12

14

16

Serbia Slovakia Latvia0

0.5

1

1.5

2

2.5


IMF – EBRD

SOBs: Lower profitability NPLsROA

(Percent of total assets)NPL ratio

(Percent, median)

14

Note: LHS: weighted averages, 2006-16.Sources: Fitch, IMF staff calculations.

0

5

10

15

20

25

30

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

SOB

Private

-2.0

-1.0

0.0

1.0

2.0

-2.0 -1.0 0.0 1.0 2.0

SOB

Private

RUS

SRB

ROM

POL

SVK

BLRBGRBIH

HUN HRV

UKR

IMF – EBRD

SOBs: Lending to less profitable firms

15

*profit per employee, US$ thousandsSources: Fitch, Orbis, IMF staff calculations.

0 1 2 3 4 5

15 14 13 12 11 5

Profitability of borrowing firm*

NPL

s (pe

rcen

t of a

sset

s)

10

11

12

13

14

15

0 1 2 3 4 5

Average loan quality

Private banksto private firms

Private banksto SOEs

SOBs to SOEs

SOBs to private firms

SOBs have lower quality loans toprivate firms and SOEs alike

IMF – EBRD

Stated objectives of state ownership?

16

Sources: National authorities, IMF staff calculations.

IMF – EBRD

Not meeting stated objectivesQuality of infrastructure Financial inclusion

17

Sources: National authorities, World Economic Forum (WEF), Findex (2017), Fitch, IMF staff calculations.

BGR

BIH BLR

CZEEST

HRV

HUN

LTU

LVA

MDA

MKD

POLROU

RUS

SRB

SVK

SVNUKR

KOS

-5

0

5

10

15

20

25

0 20 40 60 80 100

Borro

wed

for f

arm

or b

usin

ess,

poor

est 4

0 pe

rcen

t, ad

just

ed fo

r inc

ome

(per

cent

age

15+

), 20

17

SOB share of banking sector (Percent), 2016

ALB

BGR

BIH

CZE

HRV

HUNLTU

LVA

MKD

POLRUS

SRB

SVK SVN

UKR

0.40

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0 5 10 15 20

Qua

lity

of o

vera

ll in

frast

ruct

ure

adju

sted

for i

ncom

e le

vel,

2015

SOE share of value added (Percent), 2016

IMF – EBRD

Mixed evidence of employment buffer role

18

Notes: Shaded areas are crisis periods in each country; 1/ Average employment in the corporate sector (percent change; yoy 4Q ma)Sources: CSB, LB, Benkovskis and Richmond (2019), Belstat, SBRA, IMF staff calculations.

-25

-20

-15

-10

-5

0

5

10

15

20

2007 2008 2009 2010 2011 2012 2013 2014 2015

Latvia

Private

SOEs

-25

-20

-15

-10

-5

0

5

10

15

20

2014Q4 2015Q3 2016Q2 2017Q1 2017Q4 2018Q3

Belarus1

-25

-20

-15

-10

-5

0

5

10

15

20

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Serbia

Net employment dynamics(Percent)

IMF – EBRD

SOEs: Scope to improve governance

19


WO

RSE

BETT

ER

Ownership Policy Financial Oversight Fiscal and Policy Inte actionsComprehensive SOE lists Management of

ownership stakesSelection of board

membersPerformance evaluation Audited financial

statements

Interactions

ESTLVASVNKOSLTUMDAALBROUBGRMKDSVKHUNPOLMNESRBCZEHRVUKRBIHBLR

IMF – EBRD

SOEs: Scope to improve governance

20


0 2 4 6 8 10 12 14 16

ESTLVASVNKOSLTU

MDAALB

ROUBGR

MKDSVK

HUNPOL

MNESRBCZEHRVUKRBIHBLR

Ownership policy Oversight framework Fiscal links

Max score

IMF – EBRD

Weak governance budget consequencesBelarus: Fiscal support to SOEs/SOBs

(Percent of GDP) Serbia: Fiscal costs of SOEs/SOBs

(Percent of GDP)

21

Notes: 1./ Includes capital injections, debt restructuring, guarantees called net recoveries; 2./ Including to SOEs.Sources: Belarus country authorities, Serbia Ministry of Finance, IMF staff calculations.

0

2

4

6

8

10

12

14

16

18

20

-2

0

2

4

6

8

10

12

14

2011 2012 2013 2014 2015 2016 2017 2018p

Off-Balance Sheet Support¹Total Budget Subsidies²Budget Loans Issued, Net RepaymentsTotal General Government Guarantees, Stock (RHS)²

0.4

0.7

0.4

0.1

0.2

CG Budget Subsidies

LG BudgetSubsidies

ActivatedGuarantees

Other DebtAssumption

SOB Costs

Average costs

(2010-18):1.9 percent

of GDP

IMF – EBRD

Better SOE governance = better performanceEmployee cost share Revenue per employee

22

Sources: National authorities, Orbis, IMF staff calculations.

BGR

CZE

EST

HRV

HUN

MKDPOL ROU

SRB

SVKSVN

UKR

0

5

10

15

20

25

30

35

40

45

50

5 6 7 8 9 10 11 12 13 14

Shar

e of

SO

Es b

elow

priv

ate

firm

sec

tor m

edia

n

SOE Governance Index

UKR

POL

MKDSRB

ROUCZEHRV BGR

LVASVNHUN

SVK

EST

0

10

20

30

40

50

60

70

5 6 7 8 9 10 11 12 13 14

Shar

e of

SO

Es a

bove

priv

ate

firm

sec

tor m

edia

n

SOE Governance Index

IMF – EBRD

Key recommendations

• Take a fresh look at the rationale and viability for state ownership.

• Seek ways to improve SOEs and SOBs performance whether the ultimate goal is privatization or not.

• Vital to address governance short-comings, but tough choices on employment will need to be made.

• Consider broader regional coordination initiative.

23

IMF – EBRD

Thank you

24

IMF – EBRD

Background Information

25

IMF – EBRD

Governance questions (1)

• SOE list(s) – coverage and categorization• Legal coverage/ exemptions• Government oversight organization• Government oversight unit mandate• Existence of ownership policy document• SOE rationale and objectives• SOE board selection process, requirements, and

composition

26

Ownership policy

IMF – EBRD

Governance questions (2)

• SOE performance monitoring• SOE audit requirements• SOE reporting requirements

• SOE commercial mandate• Government financial support• Risk assessment function• Dividend policy

27

Financial oversight

Fiscal and policy interactions

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