Sri Lanka private citizen pension fund promised real returns

(From left) Dharmasri Kumaratunga, Director - Payments and Settlements, Central Bank; Nanda Fernando, Managing Director, Sampath Bank; and Tharaka Ranwala, Head of Operations and Group Chief Marketing Officer, Sampath Bank

Jan 07, 2009 (LBO) – Sri Lanka’s largest state-managed pension fund, made out of forced savings of private citizens, will be given returns above inflation an official said, amid rising concerns over real losses made in recent years. “We will establish a sound risk-return profile to establish a positive real rate of return over the long term,” Central Bank Governor Nivard Cabraal said in his 2010 monetary policy roadmap address this week.

Sri Lanka’s Employees Provident Fund (EPF) with a balance of 750 billion rupees belonging to more than two million accounts is managed by the Central Bank.

Real Losses

There has been rising concern in recent years over large real losses suffered by the fund as Sri Lanka’s central bank generated high rates of inflation and in the process of printing money to keep interest rates down under pressure from the finance ministry.

In 2006, the fund made a real loss of 37.6 billion rupees, based on a starting capital of 405 billion rupees, an effective rate of return of 10.20 percent and year-end inflation of 19.3 percent measured by the Colombo Consumers Price Index (CCPI).

In 2008 real losses fell to 5.7 billion rupees as the Central Bank allowed interest rates to rise.