1. Social Security Financing in Zimbabwe: From crisis to stability Henry N. Chikova (Dr)

2. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 2 INTRODUCTION Zimbabwe – Background The National Social Security Scheme Economic developments since 2000 Prescribed Actuarial Reviews to address challenges Ad hoc Actuarial Reviews The multicurrency period Looking Ahead

3. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 BACKGROUND 3

4. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 BACKGROUND Demographic Indicators 2008 Population-12.4 million (male 48%, female 52%) CDR – 19.7/1000 CBR- 25/1000 Rate of natural increase – 0.7% per year Life expectancy 2008 –Males: 40.8 years, –Females: 46.2, –Total; 43.3 years Labour force – 6.2 million 4

5. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 BACKGROUND Economic Indicators – GDP growth * Estimate GDP per capita - $303 (2009 est.) Total Consumption Level(a family of six):$520 Sectors: Agriculture – 18.1%, Industry – 22.6%, Services – 59.3% Inflation June 2008: 231 million % Dec 2009: -7.7% Feb 2010: -0.7% Currency: US Dollar, South African Rand 5 010203040506070809*10* -2.7-4.4-10.4-3.6-4.0-6.3-6.9-14.13.76.0

6. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 NATIONAL SOCIAL SECURITY AUTHORITY SCHEME Founding Act of NSSA: National Social Security Act (Ch 17:04) of 1989. Empowers minister responsible for Labour and Social Services to establish, abolish or amend social security schemes through Statutory Instruments (S.Is) Schemes should be employment based Compulsorily require payment of contributions by employers and employees, and deduction of such contributions from any salary or wages Determine benefit levels to and qualifying conditions of beneficiaries 6

7. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 Schemes Under NSSA The Authority is currently managing two schemes –Pension and Other Benefits Scheme (POBS) or (National Pension Scheme) Statutory Instrument 393 of 1993 –The Accident Prevention and Workers’ Compensation Scheme – Statutory Instrument 68 of 1990. –Presentation will focus on the National Pension Scheme

8. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 THE POBS Scheme Scheme’s Design Partial Funding /scaled premium model 1994 – 2007 contribution rate was 3% employer and 3% employee adding up to 6% contribution rate. From January 2009 the contribution rate is 8%, equally split between the employer and employee. –Coverage: all formal sector, including civil servants –1.3 million contributors

9. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 The POBS Scheme Benefits Retirement, invalidity and survivors pensions. Grants are also paid in line with the above categories of pensions. Funeral Grant

10. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 ZIMBABWE ECONOMIC CRISIS: A SUMMARY 10 “ Important Events” 1997 War Veteran Payouts; Financed through public borrowing August 1998: DRC War 1998: Food Riots September 1999: Emergency of opposition politics 2000: Land Reform Programme & sanctions

11. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 ZIMBABWE ECONOMIC CRISIS: A SUMMARY 11 2003/2004 Closure & Bank Curatorship 2003/2004 Cash Shortages (currency rationing, sale of Z$, Intro. of travellers and bearer cheques) Inflation – 200% (12/02) to 364% (06/03) Currency Reforms – 2006 New family of bearer cheques with 3 zeros lopped off March 2007: hyperinflation M.O.M > 50% Currency Reform 2008 (1) August 2008 Ten zeros removed from currency June 2008 inflation reaches 230 million percent Currency Reform 2009 February 2009 – more zeros removed. ‘NEW” currency rarely used (forex & fuel coupons replaced local currency) Official value of Z$ not known at this stage

12. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 ZIMBABWE ECONOMIC CRISIS: A SUMMARY o Unbudgeted for civil service salary increments Fixing of the exchange rate at Z$55 and later to Z$824 Job “stay-aways”, which negatively affected production in the economy Multiple interest and exchange rate regimes - which provided arbitrage opportunities and encouraged speculative behavior. The low interest rates fuelled consumptive and speculative borrowing which spurred on inflation. The low official foreign exchange rates also fuelled the foreign exchange parallel market, as a few influential individuals who accessed foreign currency at ridiculously low rates, off loaded it on the parallel market for a huge profit in Zimbabwe dollars. The “burning of money” phenomenon Price freezes were introduced by government – led to shortages, hoarding products found on the parallel market at ridiculously high prices. 12

13. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 FINANCING DURING ECONOMIC CRISIS Financing of the POBS –Contributions –Surcharges –Returns on Investments Presentation seeks to show how economic crisis affected the financing of the scheme, and how NSSA reacted to the challenges? 13

14. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 FINANCING DURING ECONOMIC CRISIS General framework for projection assumptions Demographic Factors; Mortality: - Mainly influenced by HIV/AIDS, prevalence at 25% in 2002 for the adult population, but generally decling. Fertility: Since 1982 fertility has been generally declining in Zimbabwe Migration: Difficult to measure, depended on economic performance; assumed to be zero or negligible in most valuations. GDP Growth: Due to harsh economic conditions, GDP expected to decline in the short run, except for 2009 projections Unemployment: Difficult to authenticate the projection figures due to differences in definitions Wages Growth: Prior to 2009, mainly influenced by inflation Inflation: Prior to 2009, very high levels of inflation Interest Rates: Generally tracked inflation 14

15. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 Assumptions: Major Actuarial Reviews Indicator2002-20522005-20552009-2059 Mortality (e x ): Male (Base): Male (End) : Female (Base): Female: (end) : 39.5 69.0 45.1 75.9 37.5 70.2 49.6 73.9 50.8 70.9 53.2 74.7 FertilityBase 5.5; End 2.1Base 4; End 2.1Base 3.49, End 2.1 Migration06,287 throughout5,000 throughout GDP GrowthBase -7%; End 2%Base -4%, End 2%Base 2.9; End 1% Unemployment6% throughout Base 9%, End 2% Wages GrowthBase 390%, End 5.5%Base 1,016%, End 5.5%Base 12%, End 5.5% InflationBase 598.7%, End 5%Base 1,355%, End 5%Base 15%, End 5% Interest Rates (nominal)Base 87%, End 6%Base 1600%, End 6%Base 17.8%, End 6% 15

16. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 RESULTS OF MAJOR RIEVIEWS 16

17. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 YEARS 2005 TO 2008 These years witnessed unprecedented hyperinflation levels Numerous company closures Administrative costs skyrocketed Currency Reforms (25 zeros lopped off in a period of 3 years) Benefits became valueless The scheme depended on ad hoc actuarial reviews –Yearly recommendations –Half yearly –Quarterly, and –Monthly Finally ceiling on insurable earnings was removed, and Benefits increases were pegged on contribution increases 17

18. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 AD HOC REVIEWS 18

19. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 Recommendations of Actuarial reviews 19

20. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 TOWARDS STABILITY Important Events –January 2009, national budget announcement authorised the scheme to collect contributions in foreign currency –February 2009; new inclusive government is formed –Month on month CPI drastically drops- becoming negative However: scheme was expected to pay benefits in foreign currency, without the foreign currency reserves 1 st April 2009, scheme set minimum pensions sustainable by funding from rentals and very low contributions Minimum retirement pension set at USD25.00 20

21. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 MARCH 2009 Full Review Upheld the level of pensions of 1 st April 2009 –Cautionary approach: economic environment not yet stable –Advised to reduce administration expenses to 10% of contributions. Ad hoc review of 1 January 2010 –Recommended minimum pension of USD40.00 –Administration costs, now at 7% Recommendations not implemented yet due to mixed ministerial directives 21

22. Technical Seminar of the ISSA Technical Commission of Statistical, Actuarial and Financial Studies Montevideo, Uruguay. –April 27-28, 2010 LOOKING AHEAD Use of multi-currency Funding benefits in foreign currency, where contributions were made in Zimbabwe dollars has been a challenge Removal of ceiling and increase of the rate of contribution Realigning liabilities to funding Low levels of inflation (M.O.M inflation (2009), June: 0.6%, July: 1.0%, August : 0.4% Annualised inflation rate: 1.08% Pensions have value Stakeholder confidence Upsurge in the uptake rate Easy to plan for the future 22