By Ajith Nivard Cabraal, Courtesy The Island

March 29, 2020, 6:29 pm

Former Governor, Central Bank of Sri Lanka, andPrime Minister’s Senior Advisor on Economic Affairs

Strategy 1: Return approximately 20% of the balances amounting to around Rs.500 billion of the Employees Provident Fund, lying to the credit of members, directly to the Members.

As is well known and documented, the Sri Lankan economy has suffered tremendously from the gradual and continuous deterioration of the economy for five years, from 2015 to 2019. It has also been devastated by the shock of the Easter Sunday bombings, in April 2019. In response, the new Government had already given a substantial stimulus, in January 2020, in the form of a significant tax cut and a far reaching debt moratorium.

Aganist this background, in the face of the current Covid-19 pandemic, Sri Lanka, unfortunately, does not now possess the fiscal space to provide a stimulus of the kind practised by certain advanced economies, whereby huge tax refunds, or outright grants, have been provided to the public in order to boost consumption and other economic activity.

Nevertheless, as an alternative to providing a direct fiscal hand-out, around Rs.500 billion could be infused into the economy by unconditionally returning around 20% of the EPF Member balances to the respective Members, out of the total of around Rs.2,500 billion lying to the credit of the EPF members, as at 31st December 2019.

This simple and uncomplicated return of capital could be a useful and viable alternative that could achieve the same outcome of serving as an economic stimulus, without any fiscal burden being placed on the Government.In addition, this newly created “equity” in the hands of around 2,500,000 individuals would expand further and perhaps even double, as many recipients are likely to leverage such funds with borrowings from lending institutions, which would provide a further boost to the economy.

By “unlocking” this vast pool of funds, at the present time, and through the release of such finances, which would be circulating amongst millions of people, many other “knock-on” benefits would also accrue to the people and the economy.Among such benefits would be:

(1) enhanced economic growth being recorded in the economy due to the higher investment and consumption as a result of the funds infusion.

(2) many persons being able to settle their high interest debt which is presently crippling them.

(3) new business ventures being created as a result of persons with entrepreneurial ideas and abilities being able to embark on new business ventures.

(4) more opportunities opening out for the financial sector to lend, since persons who are embarking on new economic activity are likely to leverage their new equity with debt.

(5) business confidence being enhanced and optimism rekindled due to the higher level of economic activity as a result of investment of the newly released “locked” savings, in the wider economy.

(6) an upturn being recorded in the small-scale construction activity in all parts of the country, which is now at a standstill.

(7) enhanced employment opportunities arising in the Small and Medium Enterprises sector of the country, leading to lower social tensions.

(8) Government tax revenues improving due to the rise of the level of economic activity throughout the economy.

Note: More revival strategies will be unveiled in the coming days.