Government has directed the Central Bank to remain as the custodian of the Employees Provident Fund (EPF), going back on the direction by the Governance Diagnostic by the International Monetary Fund(IMF) to remove the Central Bank’s function in the EPF, according to Central Bank Governor Dr. Nandalal Weerasinghe.

Speaking before the Committee on Public Finance (COPF), he said that the Central Bank received a letter from the Presidential Secretariat stating that the Government has decided to retain the Central Bank's custodianship of the EPF.

He revealed that the Government has asked the Central Bank to improve processes within the EPF for the time being.

He said, based on the recommendation by the IMF, the Government should have amended the EPF Act to create a different institution, like the Public Debt Management Office, to run the EPF.

“Think about the process. Who can take this over? Who can run this fund? Who can address this conflict of interest? All these good practices will have to be brought in under a new institution if that is taken away from the Central Bank,” Dr. Weerasinghe said

The IMF said EPF owning large shareholdings across the commercial banking system can be a force for indirectly shaping government behavior, especially since state-owned financial institutions are often exposed to increased risk of political influence over their operations. 

“There is also a risk, or the appearance of a risk of conflict of interest when the EPF invests in equity of banks or other financial institutions under the supervision of the CBSL,” the IMF report said.