Government took $1.1 billion from pension fund in 2023 alone

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By LatAm Reports Editor

The government took this amount between April and December. Experts point out that this is a pace that could be unsustainable over time. Total debt, on the other hand, reached this rise to a dangerous 87.7 % of GDP.

Between April and December 2023, the Government of El Salvador increased the debt to the Pension Fund by $1,097.76 million. In the last month of the year alone, the figure grew by $89 million.

According to economist and researcher Carlos Argueta, this figure is more than double what was borrowed before the pension reform, approved in December 2022. “The fund is not rubbery,” the economist wrote in his X account, referring to the fact that it is a rate of growth that threatens the sustainability of the pension fund.

“This threatens the social security of future generations,” he adds. The forecasts are the worst, considering that with the pace of taking previous years, around $500 million, the fund would remain empty in a short time.

What is the reason for this acceleration in pension debt growth? An explanation could be blamed for the 30 per cent increase in pensions handed over from the entry into force of the reform. However, the figures do not add up, as an increase of that magnitude of the $500 million (although the calculations are much more complex) would be set at $150 million. The figure by the end of the year should be below $700 million. There is therefore an inexplicable surplus.

For economist Tatiana Marroquín, if the state continues to take from the pension fund at this rate, $1.1 billion a year, he will soon run out of nothing. This is because all the contributions that current workers pay to the AFP are estimated at about $700 million (that is the average growth of the fund’s assets per year). Doing a simple operation, the fund would be left, by exercise, with a lack of around $400 million.

Marroquín points out that it is now very difficult to make a calculation on the sustainability of the fund, since the Superintendency of the Financial System (SSF) has not updated pension-related information since April 2023.

It is difficult to know with so little information that the pension system is so weakened, he says.

But, taking the annual growth averages, it is possible to assume that all the assets are about $15 billion. These must be subtracted from the total pension debt figure, which is almost $9.5 billion. Therefore, the fund currently has only about $5.5 billion left. If $1,100 is withdrawn each year, how long can it last?

Another point is the fate of that money. Is it possible to be sure that it is to pay the pensions of the old system, INPEP and ISSS? Experts in the field already question it. One of them is Patricio Pineda, of the Working Table for a Dignified Pension.

“We are already entering a period in which the sustainability of the system is really jeopardizing,” Pineda said in late 2023. When he uttered his words, the November figures had not yet been published, when the $1 billion threshold was crossed.

All this analysis cannot be done on specific figures. That, for economist Carlos Argueta, is worrying in itself. Argueta has been following up on pension-related information since 2016. He doesn’t remember a time when an update has taken as long as now, when we’re arriving at 9 months.

Most likely it’s that it’s on purpose. There’s not like much justification for this to happen. One could say that it is because it is in transition, but one of the mandates of the Superintendency of the Financial System (SSF) is to publish the information related to the supervised subjects, in this case, the AFP, says Argueta.

Another worrying aspect is that, with pension debt growth, the percentage of GDP represented by debt is also going up. Adding to the general debt pension debt (something that the Ministry of Finance has not done since the reform), it is concluded that debt is currently a risky 87.7 % of GDP.

The trajectory is unsustainable with slow GDP growth (2 %) and low inflation, says economist Rafael Lemus.

It is a vicious circle: that a country has such high levels of debt makes it less appetizing for financing and, above all, for foreign direct investment, one of the aspects of which this management has borne the most.

This article has been translated from the original which first appeared in El Salvador