ECONOMYNEXT – Net contributions to Sri Lanka’s Employees Provident Fund turned negative in 2023, with refunds made to members and their heirs exceeding contributions made to the fund during the year.
The EPF received contributions of 210.6 billion rupees up 8.2 percent from 194.6 billion rupees a year ago, while total refunds surged 32.4 percent to 215.9 billion rupees, from 163 billion rupees, data from the central bank showed.
Demographers have been warning for over two decades that outflows from the EPF would exceed inflows as Sri Lanka’s population aged and that the government would need to reduce its current spending.
But since 2004, large numbers of unemployed graduates were absorbed to the government under a policy promoted by the Janatha Vimukthi Peramuna which was grabbed by the Mahinda Rajapaksa administration, making salaries the top expense for the government.
Later, aggressive rate cuts for potential output targeting (stimulus) cum flexible inflation targeting (re-flation) triggered monetary instability and pushed up nominal rates, and interest costs rapidly outpaced the salary bill as currency crises came in rapid succession.
In 2022 EPF’s government securities were re-structured to meet International Monetary Funds, gross financing need targets (to reduce debt roll-over volumes), by extending maturities.
In addition to payments made to retirees at the designated age, some withdrawals are also allowed before retirement.
Meanwhile others also take housing loans against their EPF loans and defaults, leading to their balances being cut after a while with penalty interest rates being charged.
In 2023, 25.8 billion rupees were given as pre-retirement refunds to 42,603 members.
In addition, 4.236 billion was allocated for overdue settlement of housing loans.
In 2023, the value of the fund increased 11.5 percent to 3,857.4 despite the net withdrawals due to returns made by the managers of the fund, which is the central bank.
Total liabilities of the members increased 12.9 percent to 3,817.9 billion rupees.
“Based on the profits available for distribution, a reasonable rate of interest to its members for their balances as at end 2023 will be paid as approved by the Governing Board, with the concurrence of the ministers of Finance and Labour,” the central bank report said.
State Minister for Finance Ranjith Siyambalapitiya said Sunday that the government had decided to pay interest of 13 percent to the EPF holders from the earnings. (Colombo/Apr30/2024)