Domestic debt restructuring

The Central Bank of Sri Lanka (CBSL) stated that the Government will buy back the Treasury (T) bonds owned by superannuation Funds such as the Employees' Provident Fund (EPF) and the Employees’ Trust Fund (ETF) under the proposed domestic debt restructuring (DDR) programme and reissue them, and that those who will not participate in the programme will be charged taxes at standard rates instead of the lower rates currently charged from such Funds.

 

 

Speaking at a special media briefing on the DDR programme yesterday (29), CBSL Governor Dr. Nandalal Weerasinghe said that the DDR would be carried out in such a way that there would be no harm to the country's banking sector as well as superannuation Funds.

 

 

Considering the banking sector, he said that it is already making a significant contribution to reduce the Government's tax burden by paying a significant amount of taxes, which he said exceeds 50%, and has incurred losses due to people not repaying their loans in the prevailing economic crisis. "Banks have already incurred a loss of Rs. 916 billion due to the people's difficulties in repaying loans. We have a great responsibility to protect the banking system from further harm as well as their depositors. There are 57 million bank accounts in the country. If the money in them is withdrawn for some reason, it will cause great harm to the banking sector. Therefore, banks and other financial institutions will be exempted from the DDR programme," he explained. He also said that the exemption would be of use in ensuring economic and social security.

 

 

Although the banking sector is contributing to the Government's efforts to reduce the debt burden by paying a significant amount of taxes, Dr. Weerasinghe said that superannuation funds are currently paying taxes amounting only to 14%, and added that it raises concerns about the equality in charging taxes. "Superannuation Funds such as the EPF and the ETF, compared to banks, pay only 14% tax. Therefore, a bond exchange programme will be launched for them under the DDR programme. Accordingly, Treasury bonds purchased by them will be repurchased by the Government, and they will be reissued. They will receive an interest of 12% until 2025, and 9% from then onwards. We hope that we will be able to maintain it at 9%. There will be no changes to the balance of the ETF and EPF accounts of the workers. If there will be any reduction of the balance for some reason, it will be covered by the Treasury."

 

 

Speaking further, he said that if superannuation funds do not participate in this programme, they have another option. That is to pay taxes at standard rates instead of the rate of 14% that they currently pay. “So, they can either participate in the bond exchanging programme, or pay taxes at standard rates. If they are to participate in this programme, EPF members will continue to be paid the current interest rate of 9%, but it will be difficult to continue at that rate if they don’t participate in this programme and pay standard tax rates," added Dr. Weerasinghe.

 

 

Accordingly, he said that Treasury bills and bonds will be the key factors in the DDR programme. "There are 7.1 trillion Treasury bills at present, and 62.4% of them are owned by the CBSL. They will be converted into Treasury bonds under the DDR process. In addition, there are 8.7 trillion Treasury bonds at present, of which 20.5% are owned by superannuation Funds such as the EPF and 36% by banks, and the rest by various other parties. The process of purchasing them by the Government and reissuance is expected to be done by the end of July."

 

 

In response to a question raised by the media, he said that today (30) was declared a special bank holiday in order to avoid any adverse effects due to undue speculations until the Parliament’s approval is received for the proposed DDR process.

 

 

A special Cabinet of Ministers meeting was held on Wednesday (28) to discuss the DDR programme. The relevant proposal, which was presented by President and Finance, Economic Stabilisation and National Policies Minister Ranil Wickremesinghe, was granted approval by the Cabinet.

 

 

During the special Parliamentary session, which will commence at 9.30 a.m. tomorrow (1 July) at the request of Prime Minister Dinesh Gunawardena, the proposal for the DDR programme will be presented for adoption. It was recently reported that the Ruling Party (Sri Lanka Podujana Peramuna) Parliamentarians had been notified by President Wickremesinghe to remain in Colombo by cancelling all other visits outside Colombo including overseas travels, since the said proposal is scheduled to be tabled in the Parliament.