EghtesadOnline: The government’s debts to the Social Security Organization, Iran's biggest social insurance company that provides coverage to wage-earners and salaried workers as well as self-employed persons, amounted to 2,944 trillion rials ($11.2 billion) by the end of last fiscal year (March 19, 2020), the Ministry of Cooperatives, Labor and Social Welfare reported.
Although a fraction of the debt had accumulated before the year ending March 2011, a significant sum of it has been incurred over recent years.
The current government accounts for as much as 81% of the principal debt (excluding the nearly 20% compound interest due on late payment and other penalties), i.e., 875 trillion rials ($3.3 billion) of 1,080 trillion rials ($4.1 billion).
In 2005, when Mahmoud Ahmadinejad took office as Iran's president, the government’s debts to the organization stood at 37 trillion rials ($149 million). The debts had grown by nearly 16 times when he left office in 2013, ISNA reported.
“Figures provided by the ministry might be different from those published by the Plan and Budget Organization. However, the fact that the government’s outstanding debt has impeded the cycle of efficient investment by SSO is undeniable,” Abdolhossein Sabet, the former managing director of Social Security Investment Company (the investment arm of the organization known by its Persian acronym Shasta) told the Persian-language daily Shargh.
Sabet noted that the increasing number of retirees and lower number of active workers to help pay for them and consequently the lower support ratio that is expected to become a reality in the no-too-distant future might create further problems for the organization.
“The government and parliament are in the habit of assigning new responsibilities to SSO: from increasing pension benefits to providing insurance coverage to carpet-weavers, women breadwinners, etc.,” Ali Zafarzadeh, a former board member of the organization, said.
“The government has repeatedly pledged to pay its [3%] share of insurance premium but has failed to do so for years now. That’s one of the reasons the organization is heading for insolvency,” he added.
Noting that governments mostly add to the burden of SSO spending to win over people, Zafarzadeh said, “The Social Security Organization is not responsible for doling out pension to those who do not pay their share of insurance premium. The government needs to know that SSO is not a charity organization; it is a participatory socioeconomic organization.”
In July, the government approved a proposal to repay its debts worth 320 trillion rials ($1.2 billion) to SSO by transferring its shares in 10 state-owned companies, namely Iranian Tobacco Company, South Aluminum Corporation, Damavand Petrochemical Company, Heavy Equipment Production Company, Iran Tourism Development Corporation, Imam Khomeini Oil Refining Company of Shazand, Jajarm Alumina Plant, Zarshouran Gold Mines, the Mining Industries Development Company and Machine Sazi Tabriz Group, to the organization, ILNA reported.
Zafarzadeh said transferring the ownership of the principal asset of Shasta to the public is a very dangerous move, adding that the indebted government is forcing the minister to sell Shasta whereas the president and ministers are not allowed to interfere in the affairs of Shasta’s affiliated companies that belong to workers and employers.
Social Security Organization’s budget for the current fiscal year (March 2020-21) is at 1,700 trillion rials ($6.47 billion), which will be financed through capital gains and employment insurance premiums, says Morteza Lotfi, a board member of the organization.
“SSO does not have its own separate section in the government’s annual budgets and over 70% of its resources are derived from monthly insurance premiums paid by employers and employees,” he said.
Hard Hit by Covid-19
Social Security Organization was hit particularly hard by coronavirus pandemic because on the one hand, a majority of its members are workers of coronavirus-hit industrial enterprises, services and guilds and on the other, it has to reimburse hospitals and healthcare providers for virus-related treatment costs, Hojjat Mirzaie, deputy cooperatives minister, said recently.
The decline in SSO revenues stems from three factors: First, it is to blame on the decline in income from premiums. Due to three-month premium payment extensions offered to distressed businesses by the National Coronavirus Headquarters, SSO’s resources have been exhausted but expenses continued to rise, he told the Persian-language weekly Tejarat-e Farda.
“The second reason behind the depreciation in SSO revenues is the impact of the recession that has engulfed the services sector. Self-employed jobs have either halted their activities entirely or reduced their presence in the market to the minimum level, following the spread of the coronavirus disease as Covid-19. Some of them have let go of a part of their staff, hence premiums paid by these businesses have dropped dramatically,” he said.
“The third factor affecting SSO’s finances is the sudden surge in the number of the unemployed. Before the coronavirus, around 250,000 were on the dole. But now around 800,000 have enrolled for unemployment benefits. Notably, the government has pledged to pay 50,000 billion rials [$190 million] from the National Development Fund of Iran to the SSO for unemployment insurance.”
“The Social Security Organization accounts for nearly 10% of treatment services in Iran. At the peak of coronavirus, almost all hospitals and clinics related to the organization were exclusively offering coronavirus treatment services. In fact, they had stopped all common surgeries and policyholders were being referred to private-run hospital, which also resulted in increasing indirect costs for the organization.”
However, estimates show the pandemic has made no major dent in other pension funds, for instance, the Civil Servants Pension Organization, which is the second largest pension fund in Iran and its premiums are paid by state-run organizations. It has only seen a rise in expenses due to the unfortunate surge in the number of pensioners’ deaths and consequently the costs of death benefits to beneficiaries.
Noting that macroeconomic variables always impact the performance of pension funds, the deputy minister said during the time of recession, the employment rate falls and accordingly, new premiums decline.
Mirzaie said industries in which pension funds have invested such as tourism and transportation were badly hit during the lockdowns.
“The impact of the decline in oil prices on pension funds has also been considerable. Iranian pension funds are among major shareholders of petrochemical industries that were considerably hurt by the decline in oil prices. Prices of petrochemical feed have remained unchanged but the demand for their products has dropped significantly. On top of that, exports of these products have been hobbled by coronavirus restrictions. The same has been true about steel industry,” he said.
“Most investments by the Ministry of Cooperatives, Labor and Social Welfare’s pension funds are focused on petrochemical, steel, tourism, transportation, pharmaceutical and mining entities. Some of these industries were directly hit by the virus like tourism and some, including steel and petrochemicals, were indirectly affected by the outbreak of the disease. However, disinfectant manufacturers and pharmaceutical industries experienced a boom in their businesses and exports.”
The deputy minister noted that food industries, where Civil Servants Pension Organization has made vast investments in milk production, faced a paradoxical reality: they had lost their export markets, chiefly Afghanistan and Iraq, due to the closure of borders whereas domestic demand improved significantly.
Mirzaie noted that uncertainty about what the economic landscape will look like in the future is the biggest threat posed by the coronavirus.
“Although Iran opened up its economy much sooner than other countries and the shutdown period was quite short, demand for goods and services, namely transportation, tourism, hotels and restaurants, is still lackluster. Investors in these industries might incur irreversible losses from the crisis," he concluded.
With 14 million primary insured persons and 3.7 million pensioners, SSO covers more than half the Iranian working population. The Social Security Organization Research Institute put the estimated losses inflicted by the viral outbreak on SSO at between 230,000 and 510,000 billion rials ($1-2.3 billion).
SSO is a nongovernmental organization solely financed by contributions with the participation of the insured (7%), employer (20–23%) and government (3%). Social protection is also extended to the self-employed workers, who voluntarily contribute 12-18% of their income, depending on the degree of their coverage.