Weighed down by debt
UIF will keep paying despite R20bn deficit
The Unemployment Insurance Fund will run an average deficit of R19.7-billion as it shoulders the burden of Covid-19 joblessness. The budget review, tabled in parliament on Wednesday, noted that the UIF — the main safety net for workers facing unemployment — is expected to pay out benefits amounting to R101.9-billion in the 2020-21 financial year. This is a 533% increase compared with the R16.1-billion that was paid out in 2019-20.
The UIF’S temporary employer/ employee relief scheme (Ters) has been extended to April 2021. This will increase spending on the scheme to R73.6-billion, almost double the initial budget.
Over the next three years, the UIF expects to pay out R92.9-billion. This is a 155% increase compared to the amount the fund paid out three years before the pandemic.
UIF spokesperson Makhosonke Buthelezi said the fund would continue to pay out ordinary benefits despite projected deficits.
However, South Africa’s spiralling unemployment crisis is cause for concern, he said. “We are worried. Our source of income is from people who are employed and contributing to the fund,” Buthelezi said.
“We do have investments, but the indication is that they are not performing well. So in that environment, you will obviously be worried. Because on the one hand, more people are getting unemployed, which means there is no revenue coming in. And then this increases the benefits that we have to pay.”
Labour lawyer Michael Bagraim, a member of the parliamentary employment and labour portfolio committee, said the government’s vaccination drive should drive job recovery enough to give the UIF some relief.
The UIF has been saving for decades, Bagraim said. “If they are going to run a deficit, while the money is put away for a rainy day… We are now in a rainy day. Our unemployment is the worst in the world, so here it is: a rainy day,” he said.
Despite running at a deficit, the fund expects its net asset position to improve as the labour market strengthens, reducing unemployment claims, the budget document reads.
But recent jobs statistics do not bode well for swift labour market recovery.
According to Statistics South Africa’s quarterly labour force survey, released the day before Finance Minister Tito Mboweni gave his budget speech, the unemployment rate reached 32.5% in the last months of 2020. This is the highest unemployment rate since the survey began in 2008.
Despite earlier indications of South Africa’s economic recovery, there were still almost 1.4-million fewer people employed in the last quarter of 2020 than in the same period in 2019.
According to a recent analysis by accounting firm PWC, under the baseline economic growth scenario,
South Africa’s economy will add only 467 000 jobs in 2021. The baseline scenario sees employment returning to pre-pandemic levels by 2024.
However, if the recovery is closer to the downside scenario, the unemployment rate will continue to rise after last year’s increase, approaching 40% by the end of the decade, the PWC analysis reads.
Last year, in answer to a parliamentary question, the UIF set out several scenarios for the fund’s liquidity if unemployment continues to soar and it had to continue doling out additional relief.
According to the UIF’S actuaries, if the unemployment rate peaks at 41.4% and Ters benefits cost R48-billion, the fund will become financially unsound as insurance capital — required to “borrow from the future” — is depleted. However, sufficient funds should be available to pay claimants on a “pay as you go” basis.
Under this scenario, the fund could return to financial soundness in 10 years.
In the worst-case scenario, if the unemployment rate peaks at 53.7% and Ters benefits cost R48-billion, all accumulated credits will be depleted, and the UIF would also need to borrow against beneficiaries and service providers to pay claims.
Taking liquidity of assets into account, in this scenario, the fund will not be able to pay all claims when due and may need to put Road Accident Fund-style (RAF) measures in place to structure payments.
According to the budget review, “The national treasury is considering options to address the RAF’S accumulated liability. The intention is to pay down claims over a reasonable period of time.”