State-owned enterprises (SOEs) play an important role in Emerging Europe’s economies,
notably in the energy and transport sectors. Based on a new firm-level dataset, this paper
reviews the SOE landscape, assesses SOE performance across countries and vis-à-vis
private firms, and evaluates recent SOE governance reform experience in 11 Emerging
European countries, as well as Sweden as a benchmark. Profitability and efficiency of
resource allocation of SOEs lag those of private firms in most sectors, with substantial
cross-country variation. Poor SOE performance raises three main risks: large and risky
contingent liabilities could stretch public finances; sizeable state ownership of banks
coupled with poor governance could threaten financial stability; and negative productivity
spillovers could affect the economy at large. SOE governance frameworks are partly weak
and should be strengthened along three lines: fleshing out a consistent ownership policy;
giving teeth to financial oversight; and making SOE boards more professional.
Thilo Kroeger, Anh Thi Ngoc Nguyen, Yuanyan Sophia Zhang, Pham Dinh Thuy, Nguyen Huy Minh, and Duong Danh Tuan
The paper uses firm-level data to assess the financial health of the Vietnamese non-financial corporate sector on the eve of pandemic. Our analysis finds that smaller domestic firms were particularly vulnerable even by regional comparison. A sensitivity analysis suggests that the COVID-19 shock will have a substantial impact on firms’ profitability, liquidity and even solvency, particularly in the hardest hit sectors that are dominated by SMEs and account for a sizeable employment share, but large firms are not immune to the crisis. Risks of default can propagate more broadly through upstream and downstream linkages to industries not directly impacted, with stresses potentially translating into an increase in corporate bankruptcies and bank fragility. Policy measures taken in the immediate aftermath of the crisis have helped alleviate liquidity pressures, but the nature of policy support may have to pivot to support the recovery.