CAG report warns of Sh9tr pension crisis

Controller and Auditor General Mussa Assad briefs the media in Dodoma yesterday on the 2013/14 audit report compiled by his office.  PHOTO | EMMANUEL HERMAN 

By  Frank Kimboy, The Citizen Reporter

In Summary

• According to the Controller and Auditor General’s 2013/2014 annual general report released in Dodoma on Tuesday, the huge debt – some of it unsecured – is likely to throw the funds into a benefit payment crisis soon

Dar es Salaam. Social security funds could be thrown into a pension crisis due to a whopping Sh9 trillion debt the government owes, according to Controller and Auditor General (CAG) Mussa Juma Assad.

According to the CAG’s 2013/2014 annual general report released in Dodoma on Tuesday, the huge debt--some of it unsecured--is likely to throw the funds into a benefit payment crisis soon. 

Mounting debts over the years could have a substantial impact on the liquidity of the social security funds, Prof Assad warned, and throw the liquidity of social security funds off balance--which would have a knock-on effect on operations and their ability to meet short and long term obligations, including payment of retirement benefits.

The debt stands at Sh9 trillion now, according to a report by a task force formed to review government debts to social security funds.  The task force comprising stakeholders was formed following a mismatch of loan details between the government and the funds during a meeting with the Parliamentary Public Account Committee (PAC).

In October 2014, it came to light that the government had borrowed Sh1.88 trillion from the funds to take care of a variety projects as at September 30, 2014. Some Sh7.1 trillion of the huge debt reportedly relates to what the government owes the Public Service Pension Fund in unremitted members’ contributions since it was established in 1999.

The CAG has spoken of his concern about the government’s inability to pay the loans to the pension funds in keeping with their agreement. During a reconciliation meeting in October 2014, it was agreed that the government would pay Sh937.87 billion. But, as of 7 March this year, the funds had yet to receive the outstanding amount. In the meantime, the CAG warns, the government’s debt burden will continue to rise as some of the loans bear interests and penalties.  “Recovery of principal amounts and interest income on time is crucial to Social Security Funds for them to be able to maintain their required levels of liquidity,” the CAG warns in his report. “However, government debt from the social security funds has been rising with little or no repayment.”

By withholding the money its owes pension funds, the government poses an opportunity cost to Social Security Funds as the money would have been invested in more profitable undertakings and earn more income. The CAG is also concerned about the tendency of some of the funds to lend money to the government on the basis of oral agreements.

In the absence of loan agreements or written government guarantees, the CAG warns, the pension funds have limited assurance that these loans will be paid and this could have adverse effects on the funds. Worse still, computing interest and penalties may be compromised as criteria for such deals have yet to be concluded.

The LAPF Pensions Fund is one of the funds that gave the government loans without watertight agreements. According to the report, LAPF gave a Sh36.18 billion loan to Hombolo Local Government Training Institute without either a government guarantee or agreed repayment plan.

Moreover, the National Health Insurance Fund gave the University of Dodoma a loan to put up Phase 1 of the Medicare Centre. Some Sh43.36 billion of that amount remains unpaid and there is neither a loan agreement nor government guarantee in respect of this loan.  According to a breakdown in the task force team report presented to PAC in October 2014, the government owes LAPF Sh173.23 billion, PSPF Sh478.56 billion, PPF Sh275.68 billion, NHIF Sh106.58 billon, NSSF Sh827.51 billion and GEPF Sh14.33 billion.