Social Security Trust to Crumble - IMF

An International Monetary Fund (IMF) report on Ghana's Financial System Stability Assessment has indicted the Social Security and National Insurance Trust (SSNIT) for failing to meet almost every important performance indicator as expected of the scheme since 1996.

The report, which was circulated among members of the Executive Board of the Fund, refers to another report produced by the UK Government Actuary's Department over 1997-1999 issued in March 200.

Based on SSNIT's current assets, Ghana's social security institution could crumble by 2036, the report says.

This, according to the report, is against the background of the fact that SSNIT is recording significantly higher expenses as against disturbingly lower income.

"The currently increasing membership of three percent per annum is concealing the large actuarial deficits that are accruing," says the report.

The administrative expenses of SSNIT are growing much faster than projected, according to the IMF. "SSNIT staff of 2,700 is very large for a scheme with only 500,000, and administrative expenses are a very high of 22 per cent of contributions, or 4.2 per cent of funds invested."

The draft report confirms that real investment returns over recent years by SSNIT appear to have been negative. When inflation is brought under control, the cost of the scheme will increase further, the report points out.

The stated 1999 average nominal return on investment of 16.4 per cent leaves an insufficient rate of return in real terms, considering the current rate of inflation rate of 37 per cent.

The most worrying indicator for the future health of SSNIT is the trend of the funding ratio, according to the report.

The funding ratio is the ratio between the size of contributor's fund as a proportion of SSNIT's investment total investment.

The funding ratio has been declining when it was anticipated to rise and has fallen below eight, which is considered to be a long-term minimum target for a viable mature fund.

The drop, says the IMF, was mainly a result of provisions on non-performing assets. The experts' assessment report in 1996 had forecast that the funding ratio for SSNIT would be in double figures for the foreseeable future.

The IMF slammed SSNIT for having no clear investment policies. It says there are no restrictions against private dealing by SSNIT investment officers.

No safeguards against dealing in advance of SSNIT's own transactions are in evidence, the report says, and such actions are not defined as criminal activities under the present or draft amended Securities Industry Law.

The IMF says audited SSNIT financial statements have not been issued since 1997. However, the 2000 audit was expected to be signed by a reputable "international firm" in July this year.

SSNIT's weak results, the report says, can be attributed to a number of factors, which are notably related to the quality of the investments.

Among these are the large portfolio or real estate under construction that is not generating cash flow. Also identified were the problems of weak cash flow from corporate loans; funding of the student loan program, which the Fund says SSNIT cannot control. This scheme has, however, been discontinued since last year.

The late and sometimes non-cash payments of government contributions and high administrative expenses of SSNIT are all listed as a drain on the scheme.

The report calls for the need for SSNIT to provide additional finance to existing investments.

The SSNIT authorities, however, strongly believe that the real estate assets will produce positive cash flows starting in 2003.

The authorities cite unrealised valuation gains in land holdings of SSNIT. An amount of ?145 billion in government-related loans have also been swapped for equity, and some of the restructured loans are said to be beginning to perform.