Sri Lanka’s Central Bank Governor Nandalal Weerasinghe has dismissed concerns raised by the opposition regarding projected losses for the Employees’ Provident Fund (EPF) due to the government’s domestic debt restructuring plan. Opposition leader Sajith Premadasa had cited a research report from an independent think tank, Economy Next, claiming that the EPF would lose Rs 12 trillion by 2038 as a result of the restructuring.
Governor Weerasinghe, however, stated that the analysis in question was based on incorrect assumptions and a flawed comparison. He defended the domestic debt restructuring program as fair and argued that the research report misrepresented the reality.
According to the analysis, taking into account the current average yield rate of around 13.5%, the EPF would incur a loss of Rs 12 trillion by 2038. Weerasinghe disputed this claim, stating that the current average yield rate of the EPF is 11.5% and it is unclear where the 13.5% yield rate assumption came from.
The EPF, currently valued at around Rs 3.4 trillion, is Sri Lanka’s largest fund and holds a significant portion of the country’s treasury bonds. The EPF is managed by the central bank, which has led to concerns regarding its low yield and the potential conflict of interest in managing government debt.
Weerasinghe acknowledged that there is an opportunity loss of 4% based on the current calculations. Under the domestic debt restructuring plan, the value would drop to 96 by 2038, compared to 100 without the restructuring. He also mentioned that if the tax is considered, the estimated loss would be 21%, reducing the value to 79.
The central bank governor instructed the EPF to thoroughly analyze the situation and provide recommendations to the Monetary Board. He emphasized that the EPF is a medium to long-term fund with an average yield of 11.5%.
The Sri Lankan government’s decision to restructure its local debt, amounting to USD 42 billion, has caused concern among the banking and finance sector. Negotiations are underway with external creditors to meet the conditions of a nearly USD 3 billion bailout from the International Monetary Fund (IMF).
The IMF bailout is crucial for Sri Lanka as it faces its worst economic crisis in history due to a shortage of foreign exchange reserves. The restructuring of external debt is a key requirement of the bailout, which must be completed by September.
In summary, Governor Weerasinghe has dismissed claims that the EPF would incur significant losses due to the government’s domestic debt restructuring plan. He argued that the research report misrepresents the reality and that the EPF’s average yield is currently 11.5%. The governor has requested further analysis from the EPF and assured that the fund’s interests will be considered. The Sri Lankan government’s debt restructuring efforts are ongoing as it negotiates with both domestic and external creditors.
