{"id":100632,"date":"2020-04-01T14:27:06","date_gmt":"2020-04-01T21:27:06","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=100632"},"modified":"2020-04-01T14:27:06","modified_gmt":"2020-04-01T21:27:06","slug":"possible-economic-effects-of-the-proposal-of-mr-ajith-nivard-cabral-to-release-a-part-of-provident-fund","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2020\/04\/01\/possible-economic-effects-of-the-proposal-of-mr-ajith-nivard-cabral-to-release-a-part-of-provident-fund\/","title":{"rendered":"POSSIBLE ECONOMIC EFFECTS OF THE PROPOSAL OF MR. AJITH NIVARD CABRAL TO RELEASE A PART OF PROVIDENT FUND"},"content":{"rendered":"

BY EDWARD THEOPHILUS<\/strong><\/em><\/span><\/h2>\n\n\n

It\nseems that the proposal of Mr. Ajith Nivard Cabraal to release 20% of EPF\nbalance to members is quite controversial as it would involve in positive and\nnegative outcomes if the proposal implemented without experts’ opinions and a\nproper mathematical model. What is policy research say about the proposal,\nespecially what is opinion of Dr.P.B. Jayasundara, the secretary of the\nPresident who is a theoretical and practical economist. The proposal may\ninvolve in broader macroeconomic effects and it should be discussed from\ndifferent points of view.  Theoretically,\nit is a Keynesian style of advice and it might immediately impact on increasing\ninflation, which gives negative impact to the country. Think about the war time\nexperience and the view of John Menard Keynes, who was concerned on the excess capacity\nof the economy.  I saw a report, which\nwas based on a trade union opinion that may have focused on political views to\nattract people during the election period. \nI would like to identify the broader points involved in the proposal.<\/p>\n\n\n\n

  • If the government decides\nto release 20% of FPF balance to its members a large sum of money will go to\nthe economy increasing the aggregate demand of the country. An increase in\naggregate demand good for a country when there is an excess capacity because it\nwill support increase production thereby expand employment and national income.\nThe issue in relation to Sri Lanka is whether the country has an excess\ncapacity. Central Bank of Sri Lanka or any other authorized research\ninstitution needs to express a clear opinion in which area there is excess\ncapacity and industries related to such areas could be increased productivity\nin the short run.  The other side of the\nissue is although there is excess capacity in certain industries, has people\ngot a preference or teste to demand goods in such production areas.  Therefore, it is a highly complicated area to\ninvestigate before making decisions. \nMany developed countries made policy decisions to release a part of\nsuperannuation balance and it may positively impact the economies of developed\ncountries, however, it might not appropriate to Sri Lanka.  Developed countries concerned on the\nincreasing unemployment and paying subsidies or benefits to unemployed. <\/li>
  • The general experience in\nSri Lanka is when people get money in hand, they would use to spend them either\nconsumption or purchasing of unnecessary goods and services or imported\ngoods.  This would be concerned with\ndeteriorating foreign exchange reserves and to further depreciate the foreign\nvalue of Sri Lanka’s rupee. Sri Lanka needs a rationale to reduce import and\npromote exports. Will the proposed idea consist with the rationale? Therefore,\nthe release of 20% of the balance in EPF should not be giving a razor blade to\nmonkeys. People need to wisely spend their long-term savings and if they use\nlong term saving unwisely it would be a problem to people and the government.<\/li>
  • EPF is mainly control and\nmanaged by the Central Bank and trading banks also manage own funds.  If the government release 20% of the balance\nin Central Bank managed fund the other funds would be needed to allow its members\nto follow similar policy and it might impact the liquidity level of trading\nbanks. I have not conducted any research on this matter and my view is a mere opinion\nand it should be practically assessed. <\/li>
  • The release of a 20% fund\nwould positively impact the increase in inflation by the pull of demand and\nwhen inflation increases Central Bank must use monetary policy instruments\nincreasing the interest rate and such action might impact the supply of credit\nand savings. In developed countries cash rate was reduced by central banks. In\nSri Lanka monetary policy action to increase interest to control inflation will\nnegative for business increasing financial expenses.  The other aspect is the action (increase in\ninflation) would increase the general price level of the country supporting for\ntrade unions to struggle for wage and salary increases.  The government generally will be unpopular\namong ordinary people and it will be a supply of weapons to the opposition\nagainst the government.<\/li>
  • EPF considers as a part\nof general saving and when 20% releases it will be caused a decline in savings\nlevel of the country.  We believe that\nsavings in a country are equal to investment and a 20% decrease in saving level\nwould create fiscal problems and force the government to increase borrowing to\nbalance the budget.  Sri Lanka needs to\nincrease general savings to reduce domestic debts.  The other problem is an investment in bonds\nbecause the capacity of EPF would reduce and the government needs to look\ninvestors for bond investments.<\/li><\/ul>\n\n\n\n

    The\nrelease of 20% of EPF would be a macroeconomic problem and the impact of the\ndecision would vary and need to consider many areas. That is why I believe it\nneeds to develop a mathematical model in which variables should be needed to\nidentify considering broader factors.<\/p>\n\n\n\n

    Sri\nLanka is not a developed country although it talks in billions of rupees due to\nthe dramatic decline in the value of the rupee. \nSri Lanka has disparities in development and growth It must identify\nappropriate policies than blindly following developed countries.   <\/p>\n","protected":false},"excerpt":{"rendered":"

    BY EDWARD THEOPHILUS It seems that the proposal of Mr. Ajith Nivard Cabraal to release 20% of EPF balance to members is quite controversial as it would involve in positive and negative outcomes if the proposal implemented without experts’ opinions and a proper mathematical model. What is policy research say about the proposal, especially what […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[124],"tags":[],"class_list":["post-100632","post","type-post","status-publish","format-standard","hentry","category-edward-theophilus"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/100632","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=100632"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/100632\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=100632"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=100632"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=100632"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}