The ever-increasing social security expenses

Amid concerns over the high cost of pensions, French President Manuel Macron didn’t hesitate to increase the retirement age in France from 62 years to 64 years, despite months of protests against the plan. While countries are taking prudent measures to manage pensions and other long-term liabilities, not much serious thought has been given in Nepal about managing pensions as well as ever-increasing social security expenses. In fact, successive governments in recent years have been competing to increase social security allowances even though the cost of such allowances has been rising rapidly. The rise in life expectancy of Nepalis has also put a question mark on such practices.

While presenting the budget for the fiscal year 2021/22, the government led by then Prime Minister KP Sharma Oli raised all social security allowances by 33 percent, including the elderly allowance to Rs 4,000 per month from Rs 3,000 per month.

A year later, the Sher Bahadur Deuba-led coalition government lowered the eligibility age for receiving an elderly allowance to 68 years from 70 years. This move has come at a time when the life expectancy of Nepalis has been rising. The lowering of the age for elderly allowance coupled with the decision to hike the civil servants' salaries contributed to a massive rise in government expenses in the current fiscal year. As a result, the government struggled to pay salaries to its employees and pensions respectively in a timely manner in this fiscal year as revenue shrank owing to the contraction in economic growth and decreased imports. Economists said that the government should have streamlined the social security scheme. According to them, the government could spend a higher amount of state resources on improving the quality of health and services and make these services affordable to the majority of people instead of doling out cash for individuals. “The state cannot roll back social security allowances as the constitution has mandated the government to provide social security coverage to the citizens,” said economist Chandra Mani Adhikari, “However, it has increased the liabilities of the government. Hence, it should be managed properly.” According to Adhikari, given the resource crunch the government is going through currently, it is high time to avoid duplicity in social security. “Those who’re receiving pensions from the government should not be given the elderly allowances,” he said. According to the Department of National ID and Civil Registration, the number of beneficiaries to receive elderly allowance increased by 295,281 as of mid-April of the current fiscal year 2022/23 since the eligibility age was lowered. As of mid-April this year, there were 1.60m beneficiaries of elderly allowance above the age of 68 years while there were only 1.31m beneficiaries over the age of 70 years at the end of the last fiscal year 2021/22. With each beneficiary receiving Rs 4,000 per month, the overall stood at Rs 14.17bn by mid-April and it is bound to rise by the end of the current fiscal year mid-July. Over the last several years, the number of beneficiaries of social security allowance and the amount to be given to each beneficiary has been rising rapidly. There were 2.04m beneficiaries of social security allowance in fiscal 2011/12 which increased to 3.57m in the last fiscal 2021/22. The amount being spent on them has however been rising even faster. For example, the government spent Rs 68.61bn on social security allowances in the fiscal year 2020/21, according to the Department of National ID and Civil Registration. In FY 2021/22, it rose to Rs 88.68bn. The government is expected to spend nearly double that amount in the current fiscal year due to an increased number of beneficiaries and an increased amount for them. The government has allocated Rs 105.7bn for social security allowance in the current fiscal year, according to the Finance Ministry. However, the department has already said that the allocated budget would not be enough because of lowering the age to receive the elderly allowance. The government’s social security expenses surged at a time when it is struggling to pay salaries and pensions to its employees and retired employees due to a severe constraint on resources. In the current fiscal year, revenue collection has dipped and the transfer of funds from donors has gone down significantly. According to the Financial Comptroller General Office, the revenue collection of the government decreased to Rs 778 billion as of May 24 of the current fiscal year, down from Rs 887 billion during the same period last fiscal year. But there has been rising pressure on government resources with each government focusing on increasing the long-term liabilities. Besides elderly allowances, the government also distributes social security allowances to Dalit children, widows, disabled people, tribes on the verge of extinction, and children from communities on the verge of extension among others. The first social security scheme in Nepal was launched in 1994/95 by the government led by the then CPN (UML) leader Manmohan Adhikari. The scope of the scheme, which started by providing Rs 100 a month to the elderly, was gradually expanded to include other types of beneficiaries. In South Asia, Nepal’s spending on social spending is relatively higher than many other countries. According to a report of the United Nations Children Fund (UNICEF) released in 2020, India, Nepal, and Maldives are the only ones where public spending on social assistance exceeds 1 percent of the Gross Domestic Product (GDP). These estimates indicate that India has the highest spending in the region (1.5 percent of GDP). At the other end of the distribution, Bangladesh, Sri Lanka, Pakistan, and Bhutan all spend less than 1 percent of GDP on social assistance. The World Bank in a report has said the overall public spending on social protection rose rapidly in Nepal for a decade—from the fiscal year 2010/11 to fiscal 2019/20. According to the report, the government’s spending on overall social protection was Rs 26bn in the fiscal year 2010/11, which surged to Rs 189bn in fiscal 2019/20, which includes both cash dole-out and other social protection programs.