Central Bank Governor Dr. Nandalal Weerasinghe noted that the Employees Provident Fund (EPF) was guaranteed a return in excess of 9% and that the Central Bank had acted in its best interests in the recent debt restructuring.
Addressing concerns about the impact of the DDO plan on EPF members, he assured the public that member balances would be protected, with returns expected to grow by at least 9 %. He also refuted alternative proposals, stating that collecting outstanding tax revenues or divesting assets held by various institutions were not practical solutions to address the immediate debt crisis.
In terms of accepting the restructuring on behalf of the EPF he said, “The EPF’s choices are in between participating and getting stability for the fund or getting taxed at 30% which would be far worse.”
Dr Weerasinghe was speaking at the CMA National Management Accounting Conference 2023 held recently. The Central Bank Governor began by acknowledging the extensive discussions and debates surrounding the Debt and Development Optimization (DDO) plan that has been under consideration for several weeks and months.
He traced the origins of the debt crisis back to 2020 when the International Monetary Fund (IMF) declared Sri Lanka’s sovereign debt unsustainable.
The objective of the DDO plan is to make Sri Lanka’s debt sustainable, with specific parameters agreed upon with the IMF. These parameters include reducing the debt-to-GDP ratio from 128 percent to below 95 percent, lowering gross financing needs from 34 percent of GDP to below 13 percent by 2032, and reducing external debt service payments from 9 percent of GDP to 4.5 %.
He emphasized the importance of contributions from both the domestic and external sectors to meet these targets. He explained that the domestic sector could contribute through taxation, reducing the primary deficit, and optimizing domestic obligations.
However, he also highlighted the necessity of demonstrating a genuine commitment to fiscal discipline to gain credibility with foreign creditors.
The Governor defended the Central Bank’s role, citing its functions in maintaining financial stability, safeguarding the Employees’ Provident Fund (EPF), and acting as an agent for public debt. He argued that the Central Bank’s historical role in managing conflicting functions justified its involvement in the debt management process.
The Governor highlighted the importance of a stable banking sector and the role it plays in economic recovery. The Central Bank Governor stressed the uniqueness of Sri Lanka’s debt situation and the need for a tailored solution.
He expressed confidence in the DDO plan’s ability to stabilize the country’s debt situation and pave the way for economic recovery.
The Governor also emphasized the importance of staying on this path to avoid a second debt restructuring. (TP)
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