5 December, 2020

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On EPF Backed Economic Stimulus Package Proposed By Cabraal 

By Rusiripala Tennakoon –

Rusiripala Tennakoon

Mr Ajith Nivard Cabraal, new Prime Minister’s Senior Adviser on Economic Affairs, has come up with a novel proposal in his quest for advise to find ways and means of helping those affected by the Coronavirus endemic. The advising role apart, his quest is ours too. Nevertheless, going by the Press notice there are many areas which puzzle those who look at things bit more analytically. Hence this write up.

Undoubtedly, it is the duty of the government, compulsory as it is, falling within the Fundamental Duties and State Policy, guaranteed under the Constitution to take meaningful measures to alleviate the adversities of the people. More so, at times of unprecedented events causing severe hardships to the populace such as the current catastrophe. The constitution specifically provides for the direct intervention of the government to prescribe planning and controls towards social objectives and the public weal. The country can demand this as a right and not consider it as some ex gratia benevolence extended on merciful grounds. In this context and in a broader standpoint of the plight the people are facing, let us take a look at the Economic Adviser’s formula.

As understood by the Public Statement reported by the media, the ‘Cabraal’ formula devolves upon “……… as an alternative to providing a direct fiscal hand out, around Rs.5oo Billion could be infused into the economy by unconditionally returning around 20% of the EPF member balances to the respective members,……..” from the balances lying to the credit in the EPF. Several issues arise out of this such as follows;

1. The proposal is more concerned with the boosting of the grinding economy, since the emphasis is to “infuse Rs.500 Bn. Into the economy”. There is no dispute that the Falling economy needs to be addressed with a serious concern and suitable planning to be put in place. But in a situation where “first things will have to be addressed first” there appears to be a mix up in the enunciated initiative. Boosting the ailing economy? or finding some way of providing some fiscal assistance to a section of the people? due to the incapacitation of the Government to provide any stimulus to the people {‘ absence of any fiscal space’} due to the continued devastation the economy has suffered during 2015 to 2019.   Or is he aiming to address both in one shot ,  ie.financial assistance as well as economic resurrection?

2. The proposal is to allow 20% of the individual balances to be returned to the respective members.Balances in the EPF of any individual will depend on the remuneration package and  his period of employment. Out of the total membership of around 2.5 million, what percentage would have sufficient balances to their credit which would make a significant contribution to boost the economy with a 20% or 1/5th withdrawal? 

3. According to the available statistics, so far only 1.9 Mn members have recorded their NIC numbers under the updating programs in progress. A large number of members are contributing very small amounts into the EPF due to poor wages. The Estate workers, piece rate workers and several informal sectors who employ people periodically too are included in the total number of members for statistical purposes and does not reflect the true position of the active categories. The 20% of the balance lying to the credit of such categories will hardly be helpful and sufficient to be a contributory factor to  boost the economy.

4. Certain special schemes now in operation permit the members to draw on their balances. Eg. Obtaining Loans from approved lending institutions against the security of the EPF balance for housing purposes. In 2018 the EPF administration has issued 10,036 guarantee certificates on account of housing loans. And during the same year a total amount of RS. 2759 Mn. has been debited to the accounts of members to settle their obligations overdue and otherwise towards these institutions in respect of the Housing loans.

5. Amendment Act No.2 of 2012 provided for the withdrawal of 30% of the balance lying to the credit of a member under a pre-retirement refund scheme. This scheme came into effect from July 2015 and to date a sum of Rs.73.1 Bn. has been paid out under the program. About 130,000 beneficiaries have availed this facility. As at end of 2018 records indicate 18.6 Mn. member accounts with an increase of 8.8% during the year which infers that a significant number of members are new in the scheme, hence with small accumulated balances in their individual accounts. 

All the above factors signify a low pitch of intensity of the effectiveness of the proposal.

We also witnessed some opinions expressed by opposition politicians in a mild manner about the availability of funds that could be disbursed under the proposal. In that regard I wish to make certain observations.

As at end 2018, the investment portfolio of the EPF consisted of the following composition;

Government securities                      92.2% 

Equity investments                               3.3%

Corporate Debentures                         1.9%

Fixed Deposits                                       1.5%

Reverse Purchase agreements           1.1%

In this background Rs. 500 Billion targeted by Mr.Cabraal appears to be too high to be available immediately unless he has undisclosed information of an improved fund situation in  the EPF During the year 2019.

The anticipated benefits according to his pronouncement too are bleared and indistinct.

1. The expectation of high investment at a time like this sounds extremely wishful although the fund infusion will have a significant contribution to the consumption patterns. People are hard pressed to have access to their day to day requirements and the climate is not at all conducive even to any excessive consumption appetite.

2. If people need they can avail the 30% pre-retirement refund scheme already in operation. On the other hand, if they are allowed a refund of further 20% that would mean busting of 50% of their lifeline savings support. If it is the high interest rate that they are currently paying on account of their outside borrowings that  worries the government, they can lower the interest rates and allow the EPF members to benefit by the guaranteed investment interest rate paid on their EPF balances.

3. We cannot comprehend the existence of a mind set to invest in new business ventures in a situation like this unless a few can start manufacturing face masks! Or is there a blessed and highly privileged mafia surreptitiously operating behind the scenes to cripple first and acquire later in the business circles? 

4. In a realistic assessment banks are stretched to the maximum under the various incentive and other relief schemes now implemented under the auspices of government schemes. Hence the debt possibility anticipated under the ‘Cabraal formula’ remains volatile and appears to be illusive.

5. Mr. Cabraal refers to the EPF as Locked savings. The concept of EPF is far from being considered as locked savings at least in an individual sense. The price the State has to pay and the burden on the government to support a helpless elderly population with no other retirement benefits will overrun all other short lived advantages. “The danger of spending down of the lump sum too quickly shall become a charge on the State”.

However, for governments which have been sleeping over the years without adding any value to the EPF his reference is very valid. To make a long story short let me  passingly refer to the Singapore example how they expanded the economy using the EPF.

  1. Are we realistic to presume an upturn in the construction activities, in a situation like this? If at all it will have to be focused under different circumstances.

So much, as different viewpoints, with no malice, for the visionary benefits articulated in the article of Mr.Cabraal.

Now let us examine a few other aspects in this regards;

* Government’s responsibility to provide a living assistance at times of hardships beyond the control of the masses should not be limited to only sections of the society. Big and small alike will have concerns that need to be addressed. It calls for a certain degree of uniformity in the applications of course with varying degrees depending on the individual categories. In this instance it only applies to those who are employed since EPF  is relevant to them only.

* State cannot derelict its’ obligation under various excuses. Refunding the EPF is similar to asking someone to withdraw from his account and spend. Accruing repercussions to the beneficiaries will affect in the long term. In particular, to the lower income categories.

* Any withdrawals from the EPF balances will deny them the accruing compulsory interest benefit assured to them under the EPF Act until the final withdrawal in respect of the amount withdrawn.

* Unless the refund scheme is properly planned out paying out from the EPF balances will be a highly complicated task specially if such payments are to meet urgent contingencies. The hassle one has to go through in withdrawing  even the final balance on retirement is too well known to be highlighted here. 

* For those members with very high balances in their individual accounts this does not apply and the immediate relief is highly alien to such categories.

Considering all the above factors it will be prudent for the Senior Economic Adviser to look into the two aspects (each separately) that he wishes to accomplish under his proposal.

A. Expected economic boost and investment promotion;

Those members with very high EPF balances like the fortunate High Executives drawing in millions as remuneration having large EPF balances may be permitted to withdraw or refunds up to any feasible percentage. They will have to on their own plans how they economically manage those funds in the given situation or under improved conditions of the country later, which may consequently fulfil the expectation.  

B. Providing stimulus in the face of the current Covid-19 pandemic

a) With regard to those categories of deserving people who need to be supported, ( but State not having space to do so) to be granted financial assistance directly, funds for this purpose could be borrowed from the EPF under a government guarantee without affecting the individual balances, thus providing for the EPF to continue without any depletion.

b) Instead of a general refund of all balances up to 20% if those in the employed category who need supplementary funding, to be allowed to do so under a planned scheme to facilitate such refunds.

Country is passing through a critical phase. Today we see and experience disaster but we have to lead today for tomorrow’s future. WE cannot sacrifice the future nor can we ignore the dilemmas of  today. Let us quote from  historical records what advisers have advocated at times of calamities; 

famine relief goes back more than 2000 years. This treatise is commonly attributed toKautilya who was also known as Vishnugupta(Chanakya), who recommended that a good king should build new forts and water-works and share his provisions with the people, or entrust the country to another king. Historically, Indian rulers have employed several methods of famine relief. Some of these were direct, such as initiating free distribution of food grains and throwing open grain stores and kitchens to the people. Other measures were monetary policies such as remission of revenue, remission of taxes, increase of pay to soldiers, and payment of advances. Yet other measures included construction of public works, canals, and embankments, and sinking wells. Migration was encouraged. Kautilya advocated raiding the provisions of the rich in times of famine to “thin them by exacting excess revenue.”

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Latest comments

  • 9
    0

    Why should such advices being given by alleged high criminals be accepted by PM. PM is not executive of the govt and nor would he have the right to get that unanimously passed without asking the experts further.
    :
    This bp Ajith Kabral led groups did lot more harm than that of Ranil W ‘s Arjuna mahendran regarding years long bond scam, now being revealed to have held also in the high days of BP Mahinda Rajaksshes. The collossal losses deliberately made by them are witnessed by the world recognized experts in that forensic reporters. And this was not given a place since BP Rajakshes are in power today.
    :
    All in all, this country is now on an edge. If any wrong decision could make it thousand time worse than any time sofar. Former govt did manage many things in a better manner, but media mafia including this WRITER stood against them and made them a laughing stock.
    :
    Today, europeans enjoy 15% of price reduction in OIL prices which are influenced to anyone today. Earlier I paid 1.40 euro/liter today, I pay just 1.20. (14-15% reduction).But srilanka has not yet reduced the prices .. and the profit is being accumulated for them. Out of the profits they could give FREE rations to the poor who are really in need … and then people would not ask for any price reductions for their oil consumes.

    I think UNP could manage it far better since previous govt gave lot more concessions to the people incl… huge price reductions in medicine etc. Pay hikes after CBK s govt came into reality by Good governance, but ballige puthas led MEDIA mafia never painted it as huge gains for the public.

    • 0
      0

      Wise idea given by rajapakse ‘s”Arthika pandit” at the time being gives an another opportunity to looting funds from poor private sector employees who save some for thier rest period of life. Basil & Ajith Nivard Co.was famous enough to playing with public money. “Anichawatha Sankara” mother Sri Lanka

  • 3
    0

    We need a cash stimulus and there is no doubt about it. This isn’t the time to think about inflation or the budget deficit. We need multi pronged cash injection immediately. The tax payers will keep paying the government servants, but how about the private sector employees? Our labour laws are rigid and difficult to retrench staff and hence a wage and salary rebate is required and should be guaranteed by the government.

    Currently the impression is that the government would like the private sector employers to foot the bill which is not sustainable. Also private banks and finance companies to suffer losses and help the borrowers.

    What is required is a massive cash injection to the economy which should be ideally USD 5 billion. Apparel companies and tourism sector employ more than 1 million people and how are they going to be paid?

    • 0
      0

      Dear Mr. Perera, You are spot on in terms of a Capital Infusion to the Economy. Please see my proposal below FYI.
      I do agree with Mr. Rusiripala on a point, Quote “Quote “B. Providing stimulus in the face of the current Covid-19 pandemic
      a) With regard to those categories of deserving people who need to be supported, ( but State not having space to do so) to be granted financial assistance directly, funds for this purpose could be borrowed from the EPF under a government guarantee without affecting the individual balances, thus providing for the EPF to continue without any depletion.” unquote.
      This is exactly what I am also proposing. Borrow from the EPF/ETF and then spread the stimulus package so that Industry, Services and the individuals all can survive and be strong to recover in six months time.
      Please see my proposal below. Would appreciate your comments please whether negative or positive.
      ————————————————————-
      01st April 2020
      Below are some proposals to resolve the current and future situations that our country will face due to the Corona Pandemic.
      1. Formulate an Economic Distress Fund in the following manner :
      * Rs. 500 Billion from EPF/ETF Funds (will only be about 20% of the fund)
      *All banks and Finance Companies that has declared a Net Profit after tax to contribute 25% of such declared profit to this fund which would be claimed against their tax payments for next year. Estimated income will be around Rs. 5 Billion. Declared Nett Profits of most banks exceed Rs. 4 to 5 Billion.
      *Re impose VAT at 12%. This will not affect the larger population of the country and an additional revenue of around Rs. 300 Billion will be derived from same even with a GDP growth of less than 1%.
      * Total generated income is estimated at Rs. 805 Billion
      From the above mechanism the following benefits can be provided to the people and business sector (small and medium scale) of Sri Lanka.

    • 0
      0

      Wise idea given by rajapakse ‘s”Arthika pandit” at the time being gives an another opportunity to looting funds from poor private sector employees who save some for thier rest period of life. Basil & Ajith Nivard Co.was famous enough to playing with public money. “Anichawatha Sankara” mother Sri Lanka

  • 0
    2

    I have a EPF account and I have no issue in getting about 25% of my balance at my discretion.

    Cannot see a problem with that. Also if an employee is over 50 years, they should offer even up to 80% of the balance since anyway they would retire at 55 years and if at all after that they would be employed on one year renewable contracts.

    What is the big issue here?

    My car – my petrol

    • 0
      0

      Nimal the ‘Jarapassa A–e Licker,
      “I have a EPF account and I have no issue in getting about 25% of my balance at my discretion.”
      I bet you have talen a 125% loan against your account and still owe them more than 100%.

  • 0
    3

    One intelligent thing this government has done is not to reduce fuel prices. They should hold these prices for atleast 12 months to recover the freebies given a few months ago. Made to understand that the surplus is about Rs 1 billion per day on current oil prices of USD 30.

    We need to get out of the state of mind that we are a welfare state which we cannot afford. Fuel is the easiest product to collect taxes and India is a good example where the prices are much higher than ours.

    Even U.K.Finance Minister has said that all stimulus given now will be collected via higher taxes in the future.

    • 4
      0

      “My car – my petrol”. I like that slogan. But the problem is and has been, both “Your car & Petrol” very “Recklessly and Dangerously” driven and used by successive Governments who have been “Authorized” to drive by you. Haven’t you SEEN that during the regimes of both the MR and Ranil W.? The only “Rough” calculation that is presently available is in relation to the “Bond Scam”. But do you know this “Fund” has been consistently “ROBBED” by the “Co-corporate Giants, in collaboration with the Governments that came into power during the few decades? Just think of what has happened to your “Car & Petrol”. Cheers

    • 0
      0

      Nimal,
      They ought to raise petrol prices to at least 170 per litre.
      Higher fuel prices will cause people to cut unnecessary travel, reduce traffic congestion ,and raise prices of everything else. This is the only fair way of recovering money spent on freebies.Printing money for freebies will only cause inflation.

    • 0
      0

      Know it all Nimal the A— Licker,
      What do you know about the life in the UK or it’s economy?.
      The price of fuel was £ 1.27- £1.33 two weeks ago but it has been reduced to £ 1.02. Get a life you moron.

  • 3
    0

    The whole world needs to think of a new social security and protection scheme with the colossal impact of the COVID19 pandemic. As things stand today the outdated growth models to stimulate economy by injecting money will not yield the expected results. Since the 2008 financial crisis, the unconventional monetary policies introduced by the European countries and North America has ballooned the debt levels in the world, all economies are surviving on life support systems on debt drips. The current pandemic will expose the shortcomings badly.
    We need to be realistic that today people have no jobs, yet they have work in the informal economy. They are a large portion of the workforce. They do not contribute to the EPF.ETF or covered by any social security schemes, this is not unique to Sri Lanka, it is common everywhere. Wonder whether former Governor is expecting to give some boost to resurrect the Colombo stock market, with the announcement. Those old tricks never work in future. But Sri Lankans need to address the issue of providing wider coverage of social security to the larger segment in the gig and platform economy.
    Having bankrupted the economy investing in wasteful projects without yielding any returns dwindling the reserves former Governor should be held accountable first to the losses and erosion of the wealth of the EPF first

  • 5
    0

    Countries must be run by sound policy from administrators and not by politicians who are in power for 5 years and who screw-up the economy for their benefit and in turn screw -up the lives of the hapless public.

    In Sri Lanka everything is run and controlled by politicians. Cabral doesn’t have an ounce of brain left in him and taking advise from him is detrimental.

  • 0
    7

    I believe this is a good suggestion by Cabraal He knows what he is talking.He was at helm of CB for years and kept the ship ready.One should not allow personal prejudices to oppose a good move

  • 4
    1

    ——Mr. Tennekone, Thanks for the article——-
    ———–Old King -Mara also built harbours—-Airports– Roads —with Chinese loans–at exorbitant interest rates —

    ——–Then, pocketed in $19 billion as Forbes said with credible evidence—-
    New King -former US Refugee and Gas Station Assistant -Nandasena has an infamous record of swindling multi -million dollars through MIG AND OTHER MEGA ARMS DEALS——

    —-Do you expect “Rajapaka Hora Kalliaya” will do any good to our country other than looting it to the core —-
    ——–Bond Scam Cabral’s advice sounds a recipe for an economic disaster —–

    ——–Now this Rajapaka Hora Kalliaya” is busy in devising schemes to steal at least 50% of $500 million loan from Snake Eating and Corona Producing China—

    Basil – Mr. 40% is heading the task force

  • 5
    0

    Only thing I understand is politicians LOVE EPF.

  • 3
    1

    There is a very respected individual at the help of the Central bank and, I suppose Treasury too. Do they need to erase some paper trails. It does not matter no one will dig. Both know they were in there.

  • 2
    1

    The only way I can think of saving Sri Lanka from bankruptcy is by getting rid of all these crooks, (225+1) and their henchmen, like Nivad Cabraal. At present, we can’t think of any honest & capable person to govern the country. Only the God can save us from the upcoming catastrophic disaster.

    • 1
      1

      We are going to help God do that
      ?

  • 2
    0

    “On EPF Backed Economic Stimulus Package Proposed By Cabral”

    Basil should be thanking the gods that his prayers are been heard. Liquid funds of the Tsunami drive should have been beginning to dry.

  • 1
    0

    While the Richest Countries are struggling to keep the Economy afloat from the press reports it seems Gotha has weathered the Storm what a LIAR & a PARDONER.

    China gave birth to Corona and desperately trying to coover up. Gotha is doling likewise because he knpws Sri Lanka is doomed under him both Economically and Morally. BRAVE President NO Way back

    Coronavirus: Anger is growing at China over COVID-19 and its apparent cover-up attempt

    I hope the readers now appreciate that “Kali” never lies and Kali was the first to report the scale of the death in China which is now copied by Sky News. China reported 4000 but it turns out it is 40 Multiples of that amount nearly 160,000. This is what Gotha the BRAVE President is trying to do as there is Political Milelage to be had as evident from Saraths Article . I dont believe South Korean story either. The only Country I believe is Germany which has a far superior Medical Care anywhere in the World and read the signs early.

    Here is the text of Sky News
    We’ve long known about the dangers of a wild animal virus leaping the species gap and ravaging humans and so have the Chinese.
    They have been told repeatedly about the risks posed by their animal markets for decades.
    In 2005, we filmed secretly while being offered pangolins, rare lizards and snakes in an endangered animal restaurant in southern China.
    Year in, year out since, the Chinese have been warned by virologists that it was only a matter of time before a new lethal virus was unleashed threatening a global pandemic if the status quo was preserved.
    And yet the restaurants and markets have remained open.
    Advertisement
    Making matters worse, once that nightmare scenario came to pass, the Chinese appear to have tried to cover up their outbreak at first.
    Doctors were punished and persecuted for reporting it. Some of them have died.

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