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The International Monetary Fund has suggested that government lessen its dependence on the Fiji National Provident Fund as a regular financier of Budget deficits.
The advice has come at the conclusion in Fiji today of an IMF visit to Fiji led by its Division chief in the Asia and Pacific Ray Brooks.
The team held meetings with representatives from government, private sector and civil society as it compiled an assessment of Fiji’s economy.
Among the IMF team’s observations was the significance of the FNPF – with its investment portfolio of over F$3 billion – in the local economy.
“The government should reduce its reliance on the FNPF for financing and the FNPF should not be used to finance public enterprises since these actions undermine the Fund’s soundness. We support the government’s intention to conduct a comprehensive study to guide its reforms of FNPF,” the team said in a statement.
Brooks told FijiLive the government could reduce its reliance on FNPF by lowering its national Budget deficit.
“The FNPF is the main source of funding of the government’s deficit. If that deficit were lower, it would put less pressure on FNPF to fund the government. Reduce the deficit and there would be no need to borrow as much from FNPF,” he said.
While the team welcomed government’s efforts to contain deficit at around 3.25 percent of GDP, it also expressed concerns on the overall viability of the FNPF, saying the pension fund should not venture into high risk investments despite the current challenges it faces in not being able to invest offshore.
“It just needs to hold its cash in government bonds or in the banking system and not take unnecessary risks in lending to quasi-government enterprises or the private sector,” Brooks told FijiLive.
There was also a need, he said, for the FNPF to lower its annuity payment from the 15 percent that it currently pays out to members who opt for pension upon retirement.
“One of the problems is there is a very generous conversion of benefits to annuities. In the past someone could pull their money out of the FNPF or get an annuity - that means they could get payments for the rest of their lives – that is equivalent to 25 percent per year. That was then reduced down to 15 percent but even at 15 percent, it still remains a challenge as it would mean the fund would, over time, run out of reserves. So it (15 percent annuity) would need to be reduced somewhat further to make the fund sustainable,” Brooks said.
The FNPF is currently awaiting the results of an actuarial study it commissioned into the fund, which has been undertaken by Mercer (Australia) Pty Ltd early this year.
Actuarial reviews on FNPF were conducted by the International Labour Organisation in 1997 and 2006, and which had recommended the reduction of FNPF’s pension rates.
In 1999, the Fund began regressively reducing this by one percent every year from 25 percent to 15 percent last year.
A similar assessment by the World Bank in 2008 suggested that the 15 percent rate was still not sustainable for the Fund in the long term, and that it had to be reduced further.
