Nepal | December 17, 2018

‘Success of Social Security Scheme will rely on its execution’

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Sujan Dhungana

The government recently launched the contribution-based Social Security Scheme for formal sector workers ensuring their security. Though the scheme has been welcomed from various quarters, the private sector is apprehensive about the proper execution of the scheme and expenditure of the fund that the government collects through this programme. Sujan Dhungana of The Himalayan Times talked to economist Biswo Poudel to know about the opportunities and challenges that the concerned scheme will bring in the future. Excerpts: 

The government recently launched the Social Security Scheme with much fanfare targeting workers in the formal sector. How do you find the scheme?

Personally, I take the Social Security Scheme as a welcome move of the government and such programmes are needed for the economy to grow. In a way, the scheme is an extension of the Employees Provident Fund (EPF). Contrary to EPF, the Social Security Scheme is more ambitious as it also plans to cover the entire informal sector in the near future. If this plan materialises, then the scheme will prove to be a boon for a growing economy like Nepal. However, the Social Security Scheme was actually enacted last year and has already accumulated fund worth Rs 20 billion.

What are the challenges that you see in implementation of the scheme? 

The primary challenge is to start the scheme. Effectiveness of the scheme can be judged better once the scheme comes into effect in the real sense, that is from the day when workers and employers start contributing money to the Social Security Fund. Though the social security programme envisions various schemes related to maternity, accidents and unemployment, among others, the government is yet to define necessary guidelines for beneficiaries to avail those schemes. Clear guidelines to avail the facility and their effective implementation will lead to success of the Social Security Scheme. For example, though the scheme mentions about compensating workplace injuries, we do not have actual data on workplace injuries. What if someone claims compensation even though he/she is injured beyond the workplace? There has to be a proper verifying mechanism while compensating workers under various schemes announced. Similarly, effective utilisation of funds is a major question in our country and it also applies to the Social Security Fund. A retired worker today has to undergo various procedural hassles at the Citizen Investment Trust (CIT) to withdraw their money. It will be a major setback to the success of the Social Security Fund if it too operates in the traditional manner like that of CIT. This will result in frustration among beneficiaries and impede the success of the Social Security Scheme. At a time when Nepal’s financial system has still not fully developed, liabilities of the social security programme have not been calculated properly. Nobody knows whether or not the money collected at the Social Security Fund will be able to cater to the needs of the beneficiaries. What will the government do if there is a huge resource gap between what is required and what is available in the treasury? These things have to be analysed and defined prior to implementing the Social Security Scheme. In fact, many countries have suffered from the lack of proper calculation while implementing such schemes. It should not be the case that the government promises lots of things to workers and cannot meet the required expenditure at the end. It is the case in various sectors in Nepal. For example, the government has promised free treatment for various diseases while patients do not get free treatments easily in government hospitals because the government has not been able to allocate and disburse necessary resources accordingly. Hospitals are seen struggling to offer such free treatments and are obliged to seek assistance from donor agencies. In this sense, hospitals have a good story on how the government has failed to provide money for free treatments that it has vowed. Thus, though it is a good step to start Social Security Scheme and other such programmes, there lie huge challenges in their implementation in the future. However, a clear roadmap of such programmes will result in effective implementation of such schemes. Social Security Scheme will also be an effective tool to ensure safety, security and social welfare to people.

What impact will such schemes have on the country’s economy?

Schemes as such will basically encourage people to spend money. If citizens are insured and their old age is guaranteed with pension and medical facilities, they will start spending their earnings. And increase in people’s spending will give a boost to business activities in the country and encourage investors to set up industries and boost industrial production. This in turn will have a positive contribution to the economy. However, it will take some time. In fact, it might take a few decades for people to feel that security from the government. It is not that people will start feeling secured straightaway and start spending more in the recent future. Once people see others getting secured in their old ages through various facilities of the government, it is only then will they be emboldened to spend more of their earnings. In this sense, such social security schemes will stimulate the economy in the long run.

Though the scheme has been welcomed from various quarters, the private sector lately is worried on proper spending of the resources collected at the Social Security Fund, which will have billions of rupees in its coffer within a few years. What is your take on this?

As the Social Security Fund will be guided by laws, there is less chance of the fund being misused. However, the private sector’s concern on proper mobilisation of the Social Security Fund is genuine as the fund will have huge money collected in its coffer in the near future. With billions of rupees in hand, the government should have clear policies on where to spend the money. Currently, the Employees Provident Fund has been investing in commercial buildings and similar other projects. However, this should not be the case for Social Security Fund. The government should invest resources from the fund in commercially viable projects. If spending is done on risky projects, the fund might face a risk. Dynamic mobilisation of the fund is what the country wants. The fund can be utilised in developing mega return-guaranteed infrastructure projects, both in Nepal and abroad like what Holland did by investing in American projects. Ideally, resources from the Social Security Fund should be utilised to develop our own country. As the fund will collect huge savings, it will also help to limit the country’s external borrowing in the long run.

What impact will the social security programme have on the country’s labour market?

I believe that proper implementation of this scheme will improve industrial relations. We already have a good track of industrial relationship in the last five years. Moreover, we have a good mechanism today to deal with industrial disputes. With such mechanism in place and implementation of the social security programme, I believe that workers will have fewer reasons to fight with employers. I also do not find anything necessarily discouraging employers with the social security programme. However, there are challenges in implementing the scheme in the informal sector. There are a number of self-employed people like street vendors and those in the agriculture sector. The challenge here is how will the government categorise these people and include them in the social security scheme as envisioned.


A version of this article appears in print on December 04, 2018 of The Himalayan Times.


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