Labour minister paints four bleak scenarios for the UIF
Labour Minister Thulas Nxesi has painted a bleak picture of the financial threat posed by growing joblessness to the Unemployment Insurance Fund (UIF).
In a reply to a Democratic Alliance question in Parliament, Nxesi warned that the fund would become “financially unsound” in the event of continuing heavy job losses.
Surging unemployment will have the dual effect of reducing the fund’s income and placing new demands on it for payouts. The minister set out four scenarios of the UIF’S growing financial weakness and reliance on external funding if joblessness rises beyond the 41% mark.
He said the fund would initially be forced to tuck into its accumulated credits.
These currently stand at R41billion, according to the UIF board’s actuarial findings on the effect of Covid-19 on the fund’s financial sustainability.
Once the joblessness rate rose beyond 51%, Nxesi warned that the
UIF would have to go cap in hand to the treasury.
This would not be without precedent: the treasury bailed out the fund in the late 1990s. But the labour department’s director general, Thobile Lamati, told the Mail & Guardian that going to the treasury for additional funds “would not be ideal this time round” because of current constraints on the fiscus.
Lamati said the labour department had projected that an additional 1.5-million South Africans could be unemployed because of the pandemic and the lockdown and that “a number of small companies are going to be in financial distress”.he insisted that despite this, the fund would be in a position to cushion employees who may now be laid off.
The unemployment rate hit a record 30% in the first quarter of 2020, before the economic effect of the Covid-19 pandemic was felt.
The economy is expected to undergo further contraction. Highlighting the need to breathe new life into the economy, the treasury’s supplementary budget projected that gross domestic product will fall by 7% this year, while the South African Reserve Bank expects a slightly higher contraction of 7.2%.
In its annual report, released on June 29, the reserve bank notes that the country’s near-term outlook depends on how the Covid-19 pandemic develops and the extent of restrictions placed on business activity in an effort to contain the virus.
Since April, the UIF has been providing short-term financial support for employees whose income has been hit by the pandemic and the lockdown in terms of the Temporary Employer/employee Relief Scheme (Ters).
The scheme covers only a portion of employees’ salaries. The average monthly payment is R6 000, with the minimum R3500. Ters came to an end this week. But the UIF has not yet met all its financial obligations to claimants under the scheme. The fund has experienced some “technical
glitches” regarding the June claims, according to a statement by UIF commissioner Teboho Maruping.
The UIF’S spokesperson, Makhosonke Buthelezi, revealed this week that the fund has been selling assets to make Ters payouts.
In May, Lamati told Parliament’s labour committee that the fund had set aside R80-billion to deal with the possible mass retrenchments as a result of Covid-19. The UIF had R40-billion set aside for contingency operations, which would cover three months without liquidity.
As the lockdown could extend
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