Your EPF is your money

By Dhananath Fernando

Originally appeared on The Morning

Cabinet has approved the drafting of amendments to the Employees’ Provident Fund (EPF) Act. The Government has indicated that the objective is to improve services and respond to present social, economic, and technological changes. The complete bill is not yet publicly available. However, this is a valuable opportunity to reconsider whether the EPF is designed around the institution or around the people whose money it holds. 

For most private sector workers, the EPF will probably be the largest pool of savings they will ever own. It may finance a home, medical treatment, or their retirement. It is not a Government grant or a gift from an employer. It is part of a worker’s earnings, set aside every month for the future. 

Therefore, every amendment should begin with one simple principle: your EPF is your money. 

EPF returns 

By the end of 2025, the EPF had a net worth of nearly Rs. 5 trillion. Just over 3.1 million member accounts received contributions during the year. Yet Sri Lanka’s labour market is much larger. Many informal and self-employed workers remain outside regular retirement savings arrangements, while gig and platform-based work have made the traditional definition of employment increasingly difficult to apply. 

Compared with the main public sector pension scheme, which is financed from current tax revenue, the EPF is based on a more sustainable contributory principle. Employees contribute 8% of their monthly earnings, while employers contribute another 12%. That principle should be protected. 

However, being contributory does not automatically protect the value of a worker’s savings. What matters is not only the interest rate shown on the statement, but what that money can actually purchase. 

The EPF paid an interest rate of 9% in 2022. But annual average inflation was 46.4%. This produced a real return of approximately minus 25.5%. In 2023, the EPF paid 13%, but with inflation averaging 17.4%, the real return was about minus 3.7%. 

Conditions improved significantly in 2024, when an 11% interest rate and inflation of 1.2% produced a real return of approximately 9.7%. The EPF declared 10.75% for 2025, when annual average inflation was slightly negative. 

The lesson is not that the EPF always produces poor returns. Recent returns have been reasonable. The lesson is that a nominal interest rate can provide a misleading sense of security when inflation is high. Workers ultimately retire with purchasing power, not percentages printed on a statement. 

There is also the question of how the money is invested. At the end of 2025, approximately 94.5% of the EPF investment portfolio was held in Government securities. This may be understandable given the size of the fund and the limited depth of Sri Lanka’s capital markets. Nevertheless, it means that workers’ retirement savings are heavily connected to the financial position of the Government. 

Amendment priorities 

Following domestic debt restructuring, the governance of the EPF can no longer be treated as a purely technical matter. The roles of administrator, custodian, investment manager, and regulator must be clearly defined. 

Investment policies, costs, returns, and risks should be disclosed regularly in a form that an ordinary member can understand. Every member should have easy digital access to a complete statement showing contributions, returns, and performance against inflation. 

The first priority of the amendment should be better service and enforcement. When an employer delays contributions, it is the employee who loses both money and interest. Digital matching of salary deductions and employer remittances, automatic notifications to employees, time-bound recovery procedures, and compensation for lost interest should be considered. A worker should not discover after retirement that contributions deducted from the salary were never remitted. 

Accounts must also become genuinely portable. A person changing jobs should not be left with several disconnected accounts and paperwork accumulated over decades. A single member identity should follow the worker throughout his or her career. 

The amendment should also begin a serious discussion about member choice. This need not mean dismantling the EPF or transferring the entire fund to private operators. The existing EPF can remain the secure default option. But, over time, members could be allowed to direct a limited portion of future contributions to licensed and regulated retirement funds. 

Different workers have different needs. A younger worker may accept some investment risk for a potentially higher long-term return. Someone closer to retirement may prefer greater stability. Members could choose between conservative, balanced, and growth-oriented funds, including funds that automatically reduce risk as retirement approaches. 

Choice without protection, however, is not genuine freedom. Private managers would require strict rules on capital, independent custody, fees, conflicts of interest, audits, and disclosure. Returns should be published after deducting all fees and compared against inflation and common benchmarks. The objective must be competition based on performance, not aggressive marketing. 

Security of retirement savings 

The changing labour market must also be considered. Self-employed people, freelancers, and workers with irregular incomes should have access to simple and flexible retirement accounts. Contributions could be made in smaller amounts through digital payment systems rather than requiring a conventional monthly employer-employee relationship. 

The cost of creating formal employment also matters. For every Rs. 100 in gross earnings, Rs. 20 goes to the EPF – Rs. 8 from the employee and Rs. 12 from the employer. The employer contributes another 3% to the Employees’ Trust Fund, in addition to meeting gratuity obligations. Although these payments provide important benefits, the entire package affects the cost of hiring a worker. 

Therefore, reform should not simply increase contribution rates. It should improve compliance, reduce paperwork, broaden coverage, and make formal employment easier to create. 

Better-managed retirement savings can also provide long-term capital for productive businesses, corporate debt, infrastructure, and innovation. But retirement security must come first. EPF money should never be directed towards projects merely because they carry a development label. Every investment must be judged on risk, return, and the interests of members. 

Retirement savings are not secure merely because the Government manages them. Nor are they automatically secure simply because a private company manages them. Real security comes from clear ownership, professional management, transparent accounts, sensible diversification, low fees, effective regulation, and member choice. 

Above all, it requires low and stable inflation. No amendment to the EPF Act can fully protect workers if the value of money itself is repeatedly weakened. The best protection for the retirement savings of Sri Lankans is a stable rupee, supported by sound monetary policy. 

Do we need another State company to manage bus terminals?

By Dhananath Fernando

Originally appeared on The Morning

Among the recent Cabinet decisions was a proposal to establish a new State-owned company to operate multimodal transport hubs such as Makumbura and Kadawatha. 

At first glance, this may sound like a sensible idea. Anyone who uses public transport knows that Sri Lanka badly needs better terminals. Buses, trains, taxis, parking facilities, and passenger information systems must be properly connected. Toilets must be clean. Timetables must be reliable. Passengers must be able to move from one mode of transport to another without confusion. 

But the real question is not whether these facilities should be managed better. The question is whether we need another Government company to do it. 

Sri Lanka has tried this model before. The common facilities at the Southern Expressway interchange are operated through Canowin Hotels and Spas Ltd., a Government-linked company associated with Canwill Holdings and State-owned institutions. Although the facility remains at a reasonable standard, anyone who has visited it would know that its commercial and service potential is much greater. 

The Government also attempted a similar approach with metro bus operations by setting up a new company and injecting public money into it. Every such company requires a board of directors, senior management, office space, staff, vehicles, and an initial capital contribution from the Treasury. Before a single passenger receives a better service, taxpayers must first finance another institution. 

We have seen a smaller version of the same problem at the renovated Central Bus Stand in Pettah. A large amount of attention and public money went into reopening the facility. Yet within a very short period, even some of the washroom facilities had been damaged. 

A better management model

This is not simply a problem of investment. It is a problem of maintenance, incentives, and accountability. 

Multimodal transport hubs, airports, ports, and large terminals require specialised management skills. They must deal with thousands of passengers, multiple transport operators, retail spaces, security, cleaning, traffic flows, ticketing, and commercial activities. The quality of the service depends on countless small decisions being made every day. 

Governments are generally not good at making those decisions quickly. They do not have the same flexibility in hiring, procurement, pricing, and operations. More importantly, those responsible for failure rarely face any direct consequences. 

If a washroom is dirty, a signboard is broken, or a timetable is not displayed, which official is held responsible? If passenger numbers decline or commercial spaces remain empty, who bears the loss? In most Government institutions, the answer is the taxpayer. 

A better model is already available within Sri Lanka’s transport sector. 

The Colombo International Container Terminals and the South Asia Gateway Terminals operate within the Port of Colombo with significant private sector participation. The Government remains the landlord and retains an important regulatory role, but private operators bring capital, technology, management systems, and international expertise. 

This model is not perfect. The Government continues to play multiple roles as owner, shareholder, and regulator. That can create conflicts of interest. But it is still more effective than the Government attempting to operate every terminal directly. 

The lack of progress at the East Container Terminal provides a useful contrast. When politics, State ownership, and operational decisions become mixed together, projects are delayed and opportunities are lost. 

The Government’s responsibility 

The same principle can apply to multimodal transport hubs. 

The Government can retain ownership of Makumbura, Kadawatha, and other transport centres while allowing professional operators to manage them under clearly defined contracts. This can be done through a public-private partnership, a build-operate-transfer arrangement, a concession, or a management contract. 

The contract should specify the standards expected from the operator: cleanliness, safety, passenger waiting times, availability of information, maintenance of toilets, parking management, retail services, and accessibility for people with disabilities. 

Performance indicators must be measurable. Penalties should apply when standards are not met, while the operator should be able to earn a return by improving the facility and attracting more passengers and commercial activity. 

Even when the Government wants to provide public transport at a subsidised rate, it does not have to operate the terminal itself. Subsidies can be transparent and targeted. The operator can be paid based on passenger numbers, service standards, or the availability of essential facilities. 

The Government’s responsibility is to ensure that passengers receive a good service, not necessarily to employ everyone who provides that service. 

Airports around the world, including major hubs such as Delhi and Heathrow, operate with substantial private sector management and investment. Their success does not come merely from building modern terminals. It comes from the discipline, systems, and incentives required to maintain them every day. 

Sri Lanka has many Government buildings and infrastructure projects that were opened with modern technology and great publicity. Within a few years, equipment stops working, repairs are delayed, and facilities begin to deteriorate. 

The difficult part is rarely cutting the ribbon. The difficult part is maintaining the facility after the politicians and television cameras have left. 

The best way to provide a public service

There is also a much larger opportunity. 

Railway stations in areas such as Pettah, Kollupitiya, and Bambalapitiya sit on some of the most valuable land in the country. With the right concession structure, private investors could modernise the stations, improve passenger facilities, and develop commercial spaces without requiring the Government to finance the entire project. 

The railway could retain ownership of the land and receive concession fees or a share of the revenue. Passengers would receive a better service, while valuable public assets would generate income instead of becoming another expense to the Treasury. 

A similar approach could have been considered for metro bus operations. Instead of creating another State company, the Government could have allowed multiple private operators to enter the market under common standards, routes, and digital timetables. 

Even companies with experience in mobility and technology could contribute. A transport management company could use traffic data, passenger demand, and digital payments to utilise buses more efficiently. Platforms such as PickMe and Uber have already shown how technology can make mobility more convenient when barriers to entry are reduced. 

Sri Lanka does not lack buildings, companies, or Government institutions. What we lack are structures that connect responsibility with performance. 

Rather than establishing another State-owned company, the Government should develop a clear policy framework to outsource the management of transport hubs. It should set standards, regulate safety, monitor quality, and protect passengers. 

The Government can own the asset. But it does not have to clean every toilet, manage every shop, park every bus, or operate every terminal. 

Sometimes the best way for the Government to provide a public service is not to provide it directly, but to ensure that someone competent is held accountable for delivering it. 

The first 200 days: Can the new government lead or will it be overtaken?

By Dhananath Fernando

Originally appeared on the Morning

• Sri Lanka’s new Government faces critical early decisions

The first 100-200 days are critical for any new government. Being prepared to assume power is essential because if a government expects to prepare after getting to power, it risks being overtaken by circumstances.

This is particularly true in a country like Sri Lanka, where uncertainty is the only constant. Governments here face numerous internal and external shocks, and there is little time to prepare or adjust once in power. When a new president or government takes charge, it is akin to boarding a fast-moving train.

Many previous governments have been reactive, merely responding to crises rather than controlling the situation. If a new government fails to take command, the situation will inevitably take control of it.

During his second term, President Mahinda Rajapaksa’s Government was overtaken by corruption and inefficiency before it could address core issues. The ‘Yahapalana’ Government came to power unprepared, only drafting its Vision 2025 plan after a Cabinet reshuffle, including changes to the Ministry of Finance. By then, its primary mandate for rule of law, good governance, and economic transformation had already faded.

President Gotabaya Rajapaksa’s Government faced the unexpected Covid-19 pandemic. While somewhat prepared, its policies were misaligned with sound economic principles. The more policies it implemented, the more unpopular it became, given the delicate balance between economics and politics.

Learning from these past lessons, one hopes the current Government avoids the same mistakes. Its challenge is navigating back-to-back elections. While elections may strengthen the Government’s political power, delaying essential economic reforms could be disastrous for a fragile economy like Sri Lanka’s. Delays in reforms could take years to recover from, and in the meantime, other pressing issues may spiral out of control.

While the plan for economic stability continues, economic growth reforms are equally vital. According to the National People’s Power (NPP) manifesto, simplifying the tariff structure is a good starting point. A simplified tariff would not only boost growth and competition but also reduce corruption, benefiting consumers by lowering prices. The Government should see an increase in revenue as informal money leaks caused by a complex tariff system decline.

However, timing is crucial, and reforms need to be implemented quickly within the first 100-200 days. Simplifying the tariff structure will see resistance from trade unions and stakeholders benefiting from the corrupt system. The best way to minimise resistance is to act early. Some local companies, which profit from targeting only the domestic market, may resist the changes, as will officials who have benefitted from the complexity of the system.

The second key reform the new Government should prioritise is anti-corruption. In fact, it received a strong mandate for this. While addressing corrupt politicians and officials is important, the Government also needs to reduce the potential for future corruption by adjusting or removing certain regulations.

Even if the Government is not entirely prepared to tackle corruption vulnerabilities, the International Monetary Fund (IMF) Governance Diagnostic is ready with specific actions, responsible divisions, and timelines. By committing to this framework, Sri Lanka can also secure financial and technical support from bilateral and multilateral sources. More importantly, it would significantly reduce the country’s corruption vulnerabilities.

The Government must also avoid certain pitfalls. Delaying economic growth reforms in favour of focusing solely on anti-corruption would be a mistake. Both reforms need to move forward simultaneously, and the Government must be proactive rather than reactive.

Another mistake to avoid is the overuse of relief packages and price controls. When governments fail to deliver on promises, they often impose price controls as a last resort, covering everything from eggs and milk powder to hotel rooms. While intended to protect consumers, price controls often lead to unintended consequences. If the controlled price is lower than production costs, sellers lose the incentive to sell, creating black markets.

We hope the Government can maintain stability, grow the economy, and continue its anti-corruption drive in parallel. Failing to do so will only lead to further losses for all.