Public enterprise reform : a challenge for the World Bank

Public enterprises (PEs) earn an average 10 percent of GDP in developing countries. Many governments are reexamining the role of the state, so questions about whether to divest PEs or make them more efficient are likely to intensify. The Bank will increasingly be called upon for advice and financial support in managing the transition period. The Bank should maintain its focus on rationalizing the size of PEs, by liquidating nonviable PEs, and transfering their ownership or control to the private sector, if that will make them more efficient. In helping countries improve the efficiency of PEs that remain public, the Bank should emphasize both policy framework and institutional set-up, and restructuring of individual enterprises. It should also extend its analysis of PEs to the socialist economies, explore the relationship between PEs and the private sector, and study how best to phase and sequence PE reforms. The Bank should refine PE reform components and tools, especially in terms of the phasing and sequencing of price liberalization and competition: the budgetary impact of PEs; and the valuation of PEs for divestiture. Lastly, it should learn more systematically from experience by analyzing the outcomes of PE reforms; the performance of divested PEs; the effects on efficiency of staff reductions; and the effectiveness of program contracts on enterprise efficiency.