Sri Lanka to reintroduce subsidy to maintain senior citizen deposit rate at 10%

August 07, Colombo (LNW): Sri Lanka will restart a subsidy scheme for senior citizens to keep fixed deposit returns at 10 percent a year, closely studying the financial implications as the requires 40 billion rupees a year to bring the interest rate offered to senior citizens for their savings. Minister Bandula Gunawardana said.

Market rates are now starting to fall and the government will top up the rate to keep interest yield at 10 percent, he said.

The subsidies are being promised ahead of elections in September.The subsidy would apply to deposits of up to one million rupees for two years, according to a statement.

The budget impact was not known but if the fixed deposit rate fell to 8.5-pct the balance would be topped up by the subsidy, he said.

Sri Lanka started interest subsidies to keep rates at 15 percent but terminated them after rates cuts triggered currency trouble and stabilization required very high rates.

Pension anomalies of 83,000 retirees would also be solved, he said. The cost to the tax payers is not known, an official said.

State Minister of Finance Ranjith Siyambalapitiya told parliament recently that the 15 percent interest rate offered to senior citizens has now gone down to 8 or 7 percent or even lower in some places.

.“The government must definitely allocate money it. To make it 15 percent, we have to allocate at least 40 billion rupees a year. We now have to pay for previous years too,” he said.

He revealed that the Sri Lankan Treasury owes Rs. 108 billion to the banking sector for the higher interest rates offered on senior citizen deposits, a scheme that was terminated amidst the economic crisis. 

The scheme, which provided elevated interest rates for deposits taken before 2022, has left the Treasury with a substantial liability.

He explained that reinstating the scheme would require significant annual expenditure, estimating at least Rs. 80 billion, to cover the 15% interest rate promised to senior citizens above the age of 60.

. Additionally, efforts to recover the amount withheld from senior citizens earning less than Rs. 100,000 in interest annually through withholding tax have proven impractical, prompting the government to actively seek alternative solutions for providing these withheld amounts to affected individuals.