Government is coming forward with a new legislation that will credit all social contributions under CSG to the Consolidated Fund. However, the IMF warned against the use of pension systems to address macroeconomic issues. Will Government ignore IMF’s views in this case too?
The International Monetary Fund advised against using pension systems to address macroeconomic issues on July 20, 2020. As part of a special series on COVID-19, last year, the IMF published; “Pension Schemes in the COVID-19 Crisis: Impacts and Policy Considerations”.
The use of National Pension contribution System to fund the Consolidated Fund, originally created to allow Government to use returns on public investment and taxes to pay for recurrent and capital expenditures planned in National Budgets, is at the opposite end of what the IMF advises in the above-mentioned document.
With the publication of the first draft of the Social Contribution and Social Benefits Bill which in Part II, Section 3(3), state that “every payment made in respect of social contribution shall be credited to the Consolidated Fund”, the Government made its intentions clear.
The IMF, on its side, is of the view that “Governments need to avoid using the pension system to address the negative consequences of the crisis and to implement temporary regulatory changes only sparingly”.
It further warned; “Pension systems do not lend themselves easily to addressing short- and medium-term economic problems, including the current crisis, since they respond slowly to changing macroeconomic and demographic circumstances yet generate long-term obligations and expectations”.
Henceforth, the bill, by allowing contributions made by the active population to be credited to the Consolidated Fund of the Government, goes against advice spelled out by the IMF in the, “Pension Schemes in the COVID-19 Crisis: Impacts and Policy Considerations”.
Reforms
Even more worrying is the line which affirmed that changes made to existing pension systems during a financial crisis can worsen the sustainability of a pension system if consequences are not carefully weighed out.
“Most governments have so far refrained from changing pension policy in response to the crisis. It is crucial that, even if recovery proves slower than expected, no major changes are introduced without careful analyses of their fiscal and welfare impacts”, wrote the IMF in July 2020.
However, regarding ongoing pension reforms, the IMF observed that they should be pursued and “fully implemented since the pandemic-induced recession will most likely further worsen the sustainability of public pension systems, making reforms even more important than prior to the crisis”.
In September 2020, the Government introduced the Contribution Sociale Généralisée (CSG). This new system of contribution to the pension system replaces the former National Pension Fund. In the new Social Contribution and Social Benefits Bill that is being read in Parliament, the Government now seek to set-up “a more comprehensive regulatory framework” that will allow administrators and operators to fully implement the new social contribution and social benefits system under the CSG.
Pension system is not the only area where Government is now engaged in a conflict of views with the IMF, the most influential and powerful international institution in times of financial crisis.
