CB debunks EPF 'liquidity crisis'
The Central Bank (CB) last week denied reports of the Government's
move to amend the EPF Act as reported by certain sections of the media.
The CB in a media release, categorically denied the allegations in
the news reports that said the EPF Act will be amended to avoid making
lump sum payments to retiring employees.
The CB informed EPF members and the public not to be misled by these
vituperative allegations made by a politician with obvious political
motives.These accusations are laid bare with facts and figures, to
enable the public to understand that there is no truth in the
allegations made by the politician. The allegation that the EPF Act is
to be amended to discontinue the lump sum payment method on account of
the alleged liquidity constraints faced by EPF, is absolutely false.
“The claim that the EPF is in danger of facing a liquidity constraint
in the near future is also an utter falsehood. If the total cash inflow
including investment maturities is considered, refunds as a percentage
of total cash inflow has decreased from 9.3 percent in 1990 to 8.8
percent in 2011, clearly debunking the 'bogus liquidity crisis’ and
substantiating the strengthening of the liquidity position of the EPF
“The EPF has a net positive cash inflow and will continue to have
such a flow in the foreseeable future as well. The cash inflow of Rs.
182 billion in the form of contributions and investments and a cash
outflow of Rs 50 billion in respect of refunds in 2013, resulted in an
excess net cash flow of Rs 132 billion.
“Ninety-three percent of EPF investments are in government securities
which are very liquid. Therefore, the EPF will never face a liquidity
issue that would pose any stress in making refunds to retiring members,”
the statement said.
CB assured that the EPF is prudently and professionally managed in
line with laid down policies, guidelines, and structures by
professionally qualified staff and there have been absolutely no losses
incurred by the EPF in its entire history.
On the contrary, the EPF has been earning billions of rupees in
profits each year paying above market rate benefits to members
consistently. For example, for the past five-year period alone, the EPF
has earned profits of Rs. 558 billion, and no institution of a
comparable asset base has ever made similar profits. The rate of
interest paid on member balances has decreased recently due to gradual
maturing of high-yielding government securities. Despite this situation,
the EPF has provided members a rate of 11 percent compared to the NSB
fixed deposit rate of 9.50 percent.
The EPF has given members a positive real rate of benefits in the
recent past. The increase in contributions received will only lead to an
increase in profits in absolute terms, but not in relative terms.
Accordingly, the profits of the EPF in absolute terms has increased from
Rs.107.5 billion in 2010 to Rs.125.9 billion in 2013, the statement