Financial Management and Oversight of State-Owned Enterprises

Despite the wave of privatization during the past 30 years, state-owned enterprises (SOEs) are still of considerable strategic, economic and social importance in many countries. SOEs are also significant from a fiscal point of view because, while they lie outside the general government sector, they receive resources from the government budget, in many countries their debts are explicitly or implicitly guaranteed by the government, and they frequently carry out quasi-fiscal operations on the government’s behalf. A further concern for fiscal management is that SOEs may be owned by national (central or federal level) as well as subnational (state or provincial level) governments and, in some countries, by the third level of government — counties and municipalities — thereby both diversifying and intensifying the sources of fiscal risk. In this chapter, after first discussing the definition of SOEs, which is not straightforward, we provide an overview of their strategic, economic and social importance and assess the fiscal risks to which they give rise. We then discus how these risks can be mitigated by bringing SOEs within a comprehensive and robust legal and regulatory framework and by strengthening the arrangements for the corporate governance and oversight of these organizations.