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Governance issues, etc., will have to be sorted out to avert further debt restructuring: Verité Research

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By Rathindra Kuruwita

Unless Sri Lanka addressed its governance issues, the country would have to restructure its debt again like most countries that had unsustainable levels of corruption, Executive Director of Verité Research Nishan de Mel said in a recent televised interview.

Dr. De Mel said that as the government had decided to pay the Employees’ Provident Fund (EPF) only 9% for its investment until 2038 instead of the average Treasury bond interest rate of 13.5 percent, it would lose 12 trillion rupees.De Mel also said that Domestic Debt Optimization (DDO) was a phrase that the Sri Lankan government coined.

“Domestic debt restructuring usually means making credit owners take a loss for the benefit of the government. The word commonly used for this is restructuring, optimisation is a word that we have come up with,” he said.

De Mel said that the government’s proposal was to reduce the interest paid on the money at EPF and other such funds to 9.1 percent until 2038. However, the average interest paid for Treasury bonds over recent years was 13.5 percent, which is almost 50 percent more than the proposed interest for EPF, he said.

“We know the interest rates for Treasury Bonds because the government has released information about the interest rates of bonds issued because foreign creditors have been asking for transparency. By the end of 31 May this year, the average interest rate given to bondholders was 13.5 percent,” he said.

There had been years when interest rates for Treasury bills were below 9.1 percent. However, it was unlikely that the interest rates offered on Treasury bills would fall below 9.1 percent, he said. Sri Lanka was going through an uncertain time and governments could only lure people into buying bonds by offering attractive interest rates, de Mel added.

“We still can’t borrow from bond markets. So, the government will offer higher interest rates when it borrows from the domestic market. During the past two years, the government has paid about 30 percent interest to borrow from the domestic market. It is unlikely that interest rates for bonds will be less than 13.5 percent in the future,” he said.

De Mel said that at present there are 3.4 trillion rupees at the EPF, and it will reach about 25 trillion by 2038 at 13.5 percent interest. However, EPF funds would only grow to 13 trillion at 9.1 percent interest.

“That’s 12 trillion rupees less at 9.1 percent,” he said.

The Central Bank had a Monetary Board taking decisions on the EPF and there was a conflict of interest as CBSL was also entrusted with restructuring debt, de Mel said.

“A lot of people ask me why I am using 13.5 percent to calculate the losses. They tell me that the EPF already receives less than 13.5 percent in interest. The EPF is late in producing annual reports. The last available report was for 2020. The Central Bank produces its annual reports every year, but the EPF reports are delayed. There are many allegations about what happened. If someone tells me that EPF receives lower interest rates than the market rate for treasury bonds, that is another serious problem. All private sector employees are compelled to be a member of the EPF, so why are EPF beneficiaries receiving less than market rates?” he asked.

There are several pension funds, and CBSL workers have a special pension fund. De Mel said he was not aware if that pension fund, too, had been restructured.Although the parliament had approved a resolution on the domestic debt restructuring, the government could not change the interest rates given to EPF without changing some laws, he said.

“The laws governing the EPF say that the Central Bank must publish all investments it makes with EPF money. However, when we look at EPF’s financial statements, they have misinterpreted the above clause. Instead of listing out every investment, they are listing out every type of investment. This way, people can’t figure out what’s going on,” he said.

Those who are EPF beneficiaries will lose about 70 percent of the real value of their money because of inflation and the lower market rate of interest. However, foreign investors are only getting a 30 percent loss, he said.

“This is unequal treatment. There are two factors needed for sustainable domestic debt restructuring. One is that foreign creditors must take a deep haircut—over 50 percent. Secondly, the governance issues in a country must be addressed. Most countries have to restructure their debt more than once. And these countries have serious governance issues. So, to attain sustainability, we need foreign creditors to get a deeper haircut and we have to address our serious governance issues,.”



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Unions resist tripartite EPF management plan

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… warn of dire consequences

A group of trade unions and civil society groups has requested President Anura Kumara Dissanayake to abandon his government’s controversial plan for the proposed tripartite management of the EPF.

The group has told the President: “We strongly object to the government’s plan to transfer the EPF to a tripartite board—jointly promoted by the Employers’ Federation of Ceylon (EFC), International Monetary Fund (IMF) and the International Labour Organisation (ILO)—and to increase the investments of those funds within private equity and debt markets.

“While the EFC and the government jointly project this plan as a ‘modern governance framework’, it poses a serious threat to the EPF’s financial stability, fiduciary conduct, and returns to workers’ life savings, with severe consequences for broader macroeconomic stability. Rather than replacing the corruption existing in the public sector, this tripartite framework paves the way for a corporate takeover of the EPF. Through this, the fund is exposed to unlawful business practices such as insider trading using internal information of EPF investments, conflicts of interest and corporate bailouts of unstable private companies.

“Sri Lanka’s corporate sector has a tremendously negative track record, which you alluded to during your victorious election campaign in 2024. This was recently unravelled by the multi-billion-dollar illicit capital flight through trade misinvoicing, which your administration is now actively working to curb in the imports sector.

“The recent banking sector fraud exceeds Rs. 13 billion; widespread corporate tax evasion destabilised the fiscal position (Sri Lanka Auditor General’s Department Annual Reports) and consequently inflated the tax burden on the general public. The EFC has found it convenient to remain silent about these crimes, possibly assuming that their silence would preserve their social standing. Considering this inherent corruption within Sri Lanka’s corporate sector and its disregard to the living standards of the general public, there is no realistic basis to integrate corporate interests to actively manage the EPF. The corporate sector of Sri Lanka has not developed sufficiently on technical and ethical grounds to safely entrust the largest retirement savings pool in the country. The EPF is a captive fund that has no mechanism for the owners to divest if the management is corrupt. This further increases the possibility of corporate fraud when the management of the fund is jointly held with the corporate sector.

“Furthermore, during the recent public discussion with trade unions, Deputy Minister of Finance Dr. Anila Jayantha pointed out that the domestic debt restructuring (DDR) would inflict a loss of Rs. 600 billion to the EPF. Our independent calculations—formally submitted as an affidavit to the Supreme Court approved by the Federation of University Teachers’ Associations in 2024—reveal that nominal loss alone is Rs. 634.4 billion. When factoring in foreclosed reinvestment returns, the true loss skyrockets to Rs. 1,711 billion, wiping out 48% of the fund’s projected gross income for the 2023 – 2028 period. Under the pretext of safeguarding the banking system, this colossal robbery preserved high yields on government bonds held by commercial banks and high-net-worth individuals, subsequently reaping them astronomical profits. Now, the exact same plunder is rearing its head again disguised as a tripartite committee.”

“The main arguments supporting our resistance and viable alternatives for optimising EPF management directly under the Central Bank of Sri Lanka (CBSL), are outlined below.

“Objections to the government’s tripartite proposal:

1. The “International best practice and conflict of interest fallacies”

The government holds that tripartite management of pension funds is the “international best practice” and that there is a “conflict of interest” in CBSL managing the EPF. They are key pillars justifying government’s tripartite proposal.

These two positions are shockingly misleading given that four of the five largest pension funds in the world, in Norway, Japan, the U.S., and Singapore, are managed directly by state bodies or central banks. Therefore, ‘international best practice’ in pension fund management is the exact opposite of what the government and the IMF are proposing. We hence reject these baseless positions.

2. Corporate captivity and bailouts

It is clear that the EFC is desperately pushing for this proposal at a time of global uncertainty, to cushion the effects of the crisis and maximise gains. Under corporate influence within the proposed tripartite board, the private conglomerates can use the multi-trillion-rupee EPF to continue their unstable commercial operations without having to risk their own capital or savings to do so. This will severely erode the financial stability of the EPF and its returns.

3. Risk of front running

“Because the EPF is a colossal fund, its investment decisions can alter asset prices. This creates immense monetary value for the information generated by its investment decisions. Corporate representatives on the proposed tripartite board will be perfectly positioned to use this information to trade ahead of the EPF (front-running), buying assets cheaply and dumping them onto the EPF at inflated prices for guaranteed corporate gain, resulting in a reduction of returns to the EPF.

4. Unavoidable loopholes

“Presence of a separate group of investment analysts, trade union representatives and government officials within the proposed tripartite structure cannot prevent pre-market corporate access to EPF’s investment decisions. Investment proposals made by the analysts has to be first approved by the proposed tripartite committee, making it impossible to prevent corporate access to insider information on EPF investments.”

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Two arrest warrants issued for Gnanasara thera

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Galagoda Aththe Gnanasara

The Colombo High Court and Court of Appeal yesterday issued arrest warrants for the Bodu Bala Sena general secretary Galagoda Aththe Gnanasara in a case involving an alleged statement insulting Islam.

The arrest warrants were issued on Tuesday and Wednesday. The Court of Appeal issued an open warrant two weeks after the court rescinded the presidential pardon granted to the thera when he was serving a six-year term for contempt of court.

The Appeals Court also imposed a travel ban on the monk and ordered that the Controller General of Immigration and Emigration be informed of the restriction.

The case was taken up before Colombo High Court Judge Buddhika C. Ragala. Gnanasara Thera was not present when the case was called.

A medical report was submitted stating that Thera was unwell, while his sureties also failed to appear before court. His counsel, Asoka Weerasuriya, told court that his client wished to bring the case to an early conclusion and that representations had been made to the Attorney General in that regard.

However, after considering the submissions, the High Court judge said he was not satisfied with the medical report submitted on behalf of the accused. The court also noted the failure of the sureties to appear.

The judge subsequently ordered that Gnanasara Thera be arrested and produced before court.The Attorney General filed the case under provisions of the Penal Code, alleging that remarks made by Gnanasara Thera concerning the Holy Quran amounted to an insult to Islam.

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CA dismisses GR’s writ petition against arrest

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Gotabaya

A two-member bench comprising Court of Appeal President Justice Rohantha Abeysuriya and Justice Sarath Dissanayake yesterday (1) dismissed a writ petition filed by former President Gotabaya Rajapaksa seeking judicial intervention to prevent his arrest under the Prevention of Terrorism Act (PTA) in connection with the ongoing investigations into 2019 Easter Sunday terror attacks.

The writ petition was rejected in limine.

In the petition, the former President cited Inspector General of Police Priyantha Weerasooriya, Criminal Investigation Department (CID) Director Shani Abeysekera, the Officer-in-Charge of the CID’s Special Investigations Unit and the Attorney General as respondents. The ex-President sought the court intervention after the arrest of former head of the State Intelligence Service (SIS) retired Maj. Gen. Suresh Sallay over the Easter Sunday attacks.

Since then , former Director of Directorate of Military Intelligence (DMI) has been named as a suspect.

Earlier, the Fort Magistrate’s Court imposed a travel ban on him in relation to investigations stemming from allegations made by Asad Moulana in the Channel 4 documentary on the Easter attacks.

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