Despite the government having secured the parliamentary passage of the Domestic Debt Restructuring (DDR) programme, the opposition parties continue to make criticism and witticism about its impact, real or perceived, on contributors to the Employees’ Provident Fund (EPF) and the Employees’ Task Fund (ETF).

In the implementation of DDR, the government has excluded the country’s financial sector, mainly represented by banks and non-bank financial institutions since they are already subject to an effective tax rate of over 50 per cent. As such, it is clear that DDR will have no impact on the banking sector and its depositors. However, there is a limited impact on the EPF and the ETF. A concerted effort is now underway by the parties in the opposition to rally people against the DDR over this aspect.

Foreign Affairs Minister Ali Sabry who addressed the media on Monday said DDR was not a popular move, and somebody had to make a sacrifice somewhere in the greater interests of society. He said the government had acted in a manner with the least minimum bearing on people.

In the whole process, the government is going to restructure treasury bills and bonds held by commercial banks and pension funds. The opposition’s criticism centres on the fact that only the pension funds have been targeted.

Commenting on DDR, Samagi Jana Balawegaya (SJB) MP Dr. Harsha de Silva charged that the principle of equitable burden sharing had been violated.

“We have been now told that the amount to be restructured in terms of bonds is only 0.5 percent of Gross Domestic Product (GDP) which is quite small. Then it could certainly have been possible to share the burden among all bond holders. There would have been no significant impact on banks and other creditors if light regulatory forbearance was applied. Another issue is while foreign ISB (International Sovereign Bond) holders have the benefit to disagree with the proposed restructure of their holdings based on what are called collective action clauses, and seek a better deal for themselves, who will argue on behalf of 2.5m members of the EPF and ETF given there are no such clauses,” he said.

He said his party requested that the EPF and ETF to undertake a comprehensive analysis of the potential impact of the proposed restructure to the members.

“As SJB, we argued that the EPF and ETF Acts should be amended to guarantee a minimum rate of return. This can be done in multiple ways - a minimum nominal return (as per the 1958 Act), a variable rate based on inflation, or the application of a weighted average market rate that is to be paid out to the other bond holders until 2038,” he said.

Responding to these allegations, State Minister of Finance Shehan Semasinghe said the opposition was trying to prevail upon people to withdraw their money from the banking system, but it failed because the government did not have a haircut on deposits.

Asserting that there is no impact on the contributions to the EPF and ETF, he said a 9 percent interest had been guaranteed on returns of bonds.

“Had we done a haircut on deposits, it would have affected depositors. We did not do it. We have assured a 9-percent interest rate on EPF, ETF investments on bonds. We are planning to bring down the inflation to a single digit level. Then, the ensured interest rate on bonds will be sufficient,” he said.

He also said there would be no room for another bond scam.

“We won’t favour anyone,” he said.

The EPF, as the largest superannuation fund, paid only 9 percent interest on average in the past too. Therefore, the DDR impact on contributors will be minimum.

(Kelum Bandara)