By: Staff Writer
April 21, Colombo (LNW): In 2025, Sri Lanka’s Employees’ Provident Fund (EPF)—the retirement fund for private sector workers managed by the Central Bank—has emerged as a standout performer in terms of real returns, despite being part of the government’s broader domestic debt restructuring (DDR) initiative. This marks a significant moment for the fund, with implications for both savers and economic policy observers.
In 2024, the EPF declared an 11% interest rate on member balances, following an even higher 13% return in 2023. While nominal returns were slightly lower this year, deflationary conditions amplified their real value.
The Colombo Consumer Price Index registered a 1.7% decline in prices during 2024, largely due to a deflationary monetary stance and the strengthening of the Sri Lankan rupee. Consequently, the real return on EPF balances hit 12.7%—the highest in recent memory—up from 9% in 2023.
This performance comes amid tight monetary policies adopted by the Central Bank since September 2022, including the appreciation of the rupee from 363 to below 300 by the end of 2024. These policies, coupled with easing global commodity prices due to improved U.S. monetary policy, helped suppress inflation.
As a result, the EPF delivered double-digit real returns for the first time in decades—an exceptional achievement for a state-managed retirement fund.Despite undergoing debt restructuring as part of the IMF-supported program to reduce rollover risk, the EPF has managed to both preserve capital and enhance its real value.
The restructuring involved trading in existing government bonds for lower-yield alternatives or facing a 30% tax on income, up from 14%. The Central Bank opted to exchange bonds, mitigating the tax burden while maintaining stability in returns.
In terms of financial performance, the EPF reported a 2.9% increase in interest income, reaching Rs. 455.1 billion. Dividend income rose sharply by 82.9% to Rs. 5.5 billion, and fair value gains on listed equities nearly doubled to Rs. 49.2 billion, highlighting a healthy performance in its equity portfolio alongside its traditional government securities investments.
The broader monetary environment remains a concern. Under a new legal framework, the Central Bank is now targeting 5% inflation annually, with a permitted ceiling of 7%. Critics argue that this risks a return to inflationary conditions, undermining purchasing power—especially for retirees and low-income earners.
Historically, stable or deflationary environments yielded real interest rates equal to nominal ones. Economists caution that reintroducing inflation could reignite social unrest, especially if essential costs like food rise disproportionately.
As 2025 progresses, the EPF’s strong real returns and stable asset base offer a rare positive indicator in Sri Lanka’s economic recovery, though its future sustainability will depend on careful navigation of monetary policy, inflation targeting, and continued protection during fiscal consolidation efforts.
