On EPF Backed Economic Stimulus Package Proposed By Cabraal 

By Rusiripala Tennakoon –APRIL 1, 2020

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;

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