The Employment Provident Fund Act has been violated by the Central Bank to fulfill the fiscal needs of the previous government in 2008.
This was revealed at the Presidential Commission inquiring into the Treasury Bond issue, yesterday. It was also highlighted that the EPF has been wrongfully used by the Central Bank for the same need.
It was also suggested that the EPF Act may have contradicted the Monetary Law Act when fulfilling the government fiscal requirement. It was pointed out that according to the EPF Act, a government cannot use the EPF funds to fulfill its fiscal requirements. However, in 2008 and the following years, it was revealed at the Commission that the Central Bank has used the EPF to fulfill the same for which the EPF’s Act gives no provisions for.
The legal counsel Harsha Fernando, representing Deputy Governor P. Samarasiri revealed these while producing to the Commission, a special report submitted by the Auditor General on the request of the Finance Minister which inspects into the Treasury Bond issuances taken place from 2008 to 2016.
The evidence was lead by legal counsel Harsha Fernando through the former CBSL Deputy Governor Dr. W. A. Wijewardena whose term of office fell until 2009. He was the then Deputy Governor who had the Public Debt Department and the EPF under his purview.
The special report of the Auditor General had not been produced until then to the Commission by the Attorney General’s panel to assist the Commission on its proceedings.
While questioning, Dr. Wijewardena, Fernando suggested that there have been instances where deep discounts have been given to insignificant amounts of money worth bonds. Fernando drew the attention of the Commission to the finding that the insignificance of the amount in one instance is Rs 6.6 million. Dr. Gunawardena said it may have been the government requirement for that day.
Why did a bond be issued for such an insignificant amount as Rs. 6.6 million, Fernando questioned. He suggested that Dr. Wijewardena has issued these bonds as a favour done to somebody than fulfilling the government requirements. Dr. Wijewardena denied the allegation.
Fernando also pointed out the same bonds were given discounts reaching up to 15 percent, 33 percent and more in over several instances.
Fernando also suggested that in these years, when issuing bonds using the direct placement methods, the same bonds have been given under different rates to primary dealer and captive sources, especially to the EPF.
Fernando also suggested that since the Public Debt Department does not have a proper guidance to rely on when deciding interest rates to issue direct placements, serious discrepancies may occur.
Expressing his client DG P. Samarasiri’s stance, Fernando suggested that for good governance on the part of the Public Debt Department and the CBSL, it is better to have an auction-based system which paves way to less complications and discrepancies such as the direct placement method.
Former DG Dr. Wijewardena refused to comment on the suggestions due to lack of access to information regarding the questioned matters. Dr. Wijewardena also stated that he did not abuse his power as the DG within his term of office as the Deputy Governor of the CBSL. He further said that he believes a hybrid system when issuing Treasury Bonds is more appropriate while emphasizing the importance of having direct placement method as a controlling mechanism to control the interest rates in the Treasury Bond market.