Govt. signals DDO completion with 37% acceptance of T-Bonds

The Government yesterday signalled the completion of Domestic Debt Optimisation (DDO) with the announcement of the successful conclusion of the acceptance of Treasury Bonds amidst outcry from trade unions and think tanks.

The Government said offers for 37% of the total outstanding principal amount of Eligible Bonds were accepted. This amounts to Rs. 3.2 trillion out of Rs. 8.7 trillion worth of T-Bonds.

Amongst the Superannuation Funds, approximately 84% of the aggregate outstanding principal amount of Eligible Bonds as of the end of June 2023 have had valid Offers accepted.

To meet the Participation Threshold, 100% acceptance of valid Offers from Superannuation Funds is required, pending final confirmation from the Inland Revenue Department.

The Government said the success of the Invitation to Exchange will assist the Republic in reducing Gross Financing Needs (GFN) over the next decade, thereby contributing to the achievement of the Republic's GFN target as agreed within the framework of the current IMF-supported program.

All SFs who participated in the DDO will avoid the tax hike to 30%. The issuance of new T-Bonds will happen on 14 September. 

The finality comes amidst outcry from the Opposition, trade unions and think tanks.

Verite Research Executive Director Dr. Nishan de Mel recently via a series of tweets warned of serious implications as well as repercussions. 

He said the Bill puts a “tax gun” at the head of EPF trying to force “voluntary” bond exchange and noted the Monetary Board would be wrong to accept the proposed DDO.

“Shouldn’t it not make the analytical basis public and open to prior external scrutiny first?,” queried de Mel.

He was of the view that the Monetary Board (MB) and CBSL are in a highly conflicted place.

“The CBSL cannot be a neutral advisor on the calculations on the decision for EPF. Making the data transparent, seeking external advice and publishing prior, protects the MB from future charges of irresponsibility,” de Mel argued.

He said Sri Lanka is the only country in the world (based on published data) that is putting the entire burden of local currency bond restructuring exclusively on the social security funds of workers. (See chart)

To overcome the unconstitutionality of such unequal treatment, the Government presented it as a “voluntary” debt exchange. The Central Bank Monetary Board is the custodian of the largest social security fund and will make the decision. But how to justify such an action?, queried de Mel.

“The Government brings a law to more than double the taxation on (already adversely taxed) social security funds, if they don't “voluntarily” agree to the debt exchange and bring down the returns to workers on their retirement savings. The Central Bank proposed this “solution” to reduce Government debt. It is now conflicted in advising its monetary board on what is best for the EPF. How can the MB make a responsible decision without seeking external analytical advice and publishing it with data and assumptions?,” questioned Verite Research’s Executive Director Dr. de Mel.

The Collective of Trade Unions and Civil Society Organisations against what they described as “#28Kollaya” alleged that the Central Bank is oblivious to the impact of Domestic Debt Restructuring (DDR) on the Employees Provident Fund (EPF).

The Collective demanded among other things exclude EPF, ETF, and other superannuation funds from DDR and pursue alternatives to attain domestic debt sustainability.