By Sandun A Jayasekera
Former Central Bank Governor and Economic Consultant to Prime Minister Mahinda Rajapaksa proposes to return approximately 20% of the balances amounting to around Rs.500 billion of the Employees Provident Fund (EPF) lying, directly to the credit of members, as a strategy to salvage about 2.5 million employees of the state and private sector from their financial woes that emerged from the COVID 19 pandemic.
“It is well known and documented that the Sri Lankan economy has suffered tremendously from the gradual and continuous deterioration of the economy for five years from 2015 to 2019. It has also been devastated by the Easter Sunday bombings in April 2019. In response, the new Government had already given a substantial stimulus in January 2020 in the form of a significant tax concession and a far- reaching debt moratorium, Mr. Cabraal said.
“In that background and the face of the current Covid-19 pandemic, Sri Lanka, unfortunately does not possess the fiscal space to provide a stimulus of the kind practised by certain advanced economies, whereby huge tax refunds or outright grants have been provided to the public in order to boost consumption and other economic activity.Nevertheless, as an alternative to providing a direct fiscal hand-out, around Rs.500 billion could be infused into the economy by unconditionally returning around 20% of the EPF member balances to the respective members, out of the total of around Rs.2,500 billion lying to the credit of the EPF members as at 31st December 2019,” he stressed.
Mr.Cabraal said that the simple and uncomplicated return of capital could be a useful and viable alternative that could achieve the same outcome of serving as an economic stimulus, without any fiscal burden being placed on the Government.
“In addition, this newly created “equity” in the hands of around 2,500,000 individuals will expand further and perhaps even double, as many recipients are likely to leverage such funds with borrowings from lending institutions, which would provide a further boost to the economy.By “unlocking” this vast pool of funds at the present time, and through the release of such finances which would be circulating amongst millions of people, many other “knock-on” benefits would also accrue to the people and the economy,” Mr. Cabraal emphasized..
“Among such benefits, enhanced economic growth would be recorded in the economy due to the higher investment and consumption. As a result of the funds infusion, many people will be able to settle their high interest debt which is presently crippling them and new business ventures by persons with entrepreneurial ideas and abilities will be embarked,” he said.
Also, more opportunities will be created for the financial sector to lend since persons who are embarking on new economic activities are likely to leverage their new equity with debt, business confidence being enhanced and optimism rekindled due to the higher level of economic activity as a result of investment of the newly released “locked” savings, in the wider economic perspective.Due to the rise of the level of economic activity through the economy, an upturn is being recorded in the small-scale construction activity in all parts of the country, which is now at a standstill and enhanced employment opportunities are arising in the Small and Medium Enterprises sector of the country, leading to mitigate the social tensions and bring about an improvement in the Government tax revenues,” Mr. Cabraal said.
Mr.Cabraal said that the simple and uncomplicated return of capital could be a useful and viable alternative that could achieve the same outcome of serving as an economic stimulus, without any fiscal burden being placed on the Government