The unelected Government of Sri Lanka has advanced Domestic Debt Restructure (DDR) as a measure to meet the Debt Sustainability targets set by the International Monetary Fund (IMF). The Government argues that DDR is necessary to ensure the principle of burden sharing with private creditors. However, the actual DDR proposals reveal a different story.

The Government is taking the lead in restructuring domestic debt when the private creditors holding over 47% of Sri Lanka’s foreign debt have yet to make any substantial commitment to debt restructuring. Such a move by the Government only indicates bad faith and the continuation of the trajectory of passing the entire burden of the financial crisis on the working people of this country.

According to the Governor of the CBSL, the bearers of the burden of DDR are the working people in Sri Lanka. Specifically, the entire cost would be borne by the superannuation funds which includes the Employees’ Provident Fund (EPF), Employees Trust Fund (ETF), other private pension funds (almost 80 pension funds, including those of the CBSL, University Teachers, BOC and, People’s Bank…), the Widow’s & Orphan’s Pension scheme (W&OP), and Gratuity. The DDR plans therefore show how the Government is sacrificing Sri Lankan working people’s social security funds to appease private creditors on Wall Street. Notwithstanding privatisation, price hikes, and welfare cuts imposed on the people, the IMF is joining hands with a Government bereft of any public mandate to rob people’s pension funds in the name of debt sustainability.

Compared to the Rs. 575 billion increase by superannuation funds in 2022, the business elites through the commercial banking system increased their treasury bond holdings by Rs. 1.7 trillion (CBSL Annual Report 2022) when interest rates rose to unprecedented levels. In other words, restructuring Treasury bond holdings of the domestic business elite with the coupon rate reduction and maturity extension would reduce the Government’s financing cost substantially in comparison to restructuring superannuation fund assets. The banking sector would face no adverse consequences – Treasury bond holdings account for only 16% of the total assets of the sector and 20% of total deposits. The rate reduction can be easily absorbed by reducing the interest on deposits by a fraction of the coupon rate reduction, a luxury which the superannuation funds do not enjoy. However, according to the CBSL Governor’s proposal, pension funds alone will incur reduced interest payments until 2038, decreasing the Government’s Gross Financing Needs by 0.5% of the GDP. This amounts to a minimum of Rs. 120.5 billion a year which increases with nominal GDP each year, leading to the possibility that the total payments to the fund can be totally wiped out within 15 years and an estimated minimum loss of Rs. 3.7 trillion to the EPF alone during the period. In contrast, the business elite that evaded Rs. 904 billion in declared tax expenses is allowed to reap full payment on high interest bonds while the tax paying working people of the country is forced to bear the full burden of DDR. This year over 93% of total budget deficit is spent on interest payments alone that primarily benefit the domestic business elite holding Government bonds while people are mercilessly taxed to pay them high returns.

Not only does the entire debt restructuring process lack transparency and accountability, but it is also devoid of consistency. The Government has backtracked on its initial declaration that only dollar-denominated debt would be restructured. Furthermore, it is now blatantly backpedalling on its earlier vow to not touch pension funds. The past actions of the CBSL prove that inconsistent policy is not due to a lack of information or the complexity in negotiations but because there is a deliberate intent to target pension funds. Even though the CBSL acts as the caretaker of the pension funds, it has exposed them to precarious investments in the past, incurring massive losses to working people. This policy inconsistency is therefore not an accident but a reflection of a premeditated attack on a key public asset.

While the pension funds of the working people have become the sacrificial lamb, the CBSL Governor has taken great pains to relieve the business elite of any burden. When the working people of Sri Lanka were forced to consume bitter medicine, the business elite accrued massive profits through high interest Government bonds. The Government has no plans to cut down these interest rates while workers are forced to take hit after hit. What does it mean when the Government chooses the business elite over the working people who constitute the flesh and blood of the economy? While the working people bear a disproportionate burden, the Government has indulged the corporate sector with debt relief, tax holidays and labour law reforms. We see the attack on the EPF as a part of the larger, brutal offensive against the working people of Sri Lanka. The Ranil Rajapaksa Government is extending its assault on public assets. After beginning the privatisations of the CEB, CPC and Telecom, and after eradicating market safeguards, it has now set out to destroy working people’s last asset, their pension funds! In this assault, the Government is ably assisted by the IMF and a network of corrupt, neoliberal think tanks, professionals and media outlets. As working people, we resist this assault! We unite and come forward to defend our wealth!

Swasthika Arulingam

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