Government mulls options to ease growing burden of social security allowancesObservers call for alternatives even as safety net for the elderly, poor, vulnerable and needy is state’s responsibility.
The government has sought a voluntary renouncement of social security allowances, which come in the form of cash transfers, from the people “who do not require” such support in the wake of a consistent rise in resources it has to spend on the scheme.
The government has also announced that people forgoing such benefits would be recognised and honoured. Issuing a notice on August 12, the Department of National ID and Civil Registration urged the local governments to honour those who are entitled to such allowances but decide to not take them, in line with the provisions of the Social Security Regulations.
As per Rule 14 of the regulations, the beneficiaries can voluntarily give up social security allowances and Rule 15 has provisions that local governments need to honour such persons and reward them with certificates of appreciation.
“The regulations were introduced about two years ago, but very few people have decided to forgo the allowances,” said Jitendra Basnet, director general at the department.
“I don’t have the exact data at this time on how many people have given up the allowances that they are entitled to as per the existing rules. But I can definitely say the number is insignificant.”
The department has also urged local governments to raise awareness about voluntary renouncement of the allowance so that more people who have their own means to take care of themselves might give up the benefits, thereby easing the burden on the state.
People aged 70 years and above; those aged 60 and above from the Karnali region and Dalit communities; helpless widows and single women; people with disabilities; people from endangered communities and children from some specific regions and communities are entitled to social security allowances.
According to the department, over 3.45 million people were the beneficiaries of the social security allowances by the end of the last fiscal year 2020-21.
The government spent Rs66.16 billion on cash transfers to those under the social security allowance scheme in the fiscal year 2019-20, according to the department. The allowances increased to Rs68.65 billion in the last fiscal year 2020-21, ending mid-July. The KP Sharma Oli administration increased the social security allowances by 33 percent for all types of beneficiaries.
The monthly allowance for senior citizens was increased to Rs4,000 per month from Rs3,000 per month. As a result, budgetary allocation jumped to Rs100 billion for the purpose of social security allowance.
The social security allowances are part of the government’s compulsory liabilities, aimed at providing a safety net to the aged, vulnerable and marginalised citizens.
“The increasing social security allowances, however, will increase the liability of the government in the long run,” said Shanta Raj Subedi, a former finance secretary. “Besides cash transfers, there are other various schemes of social security which are also increasing the cost of overall social security.”
Besides cash transfers, the government also spends on health insurance for citizens, pensions, retirement benefits, financial assistance for natural disaster victims and scholarships for targeted groups.
“There are 42 types of social security schemes currently and combined resources needed under these schemes is around Rs255 billion,” said Rameshore Khanal, also a former finance secretary. “This means over 25 percent of the government’s revenue target for the current fiscal year 2021-20 will go to the social security schemes. This is still high compared to even the developed countries.”
In the last fiscal year, around 30 percent of the total revenue was spent on social security schemes. The federal government in 2020-21 collected Rs829 billion in revenues.
“If revenue collection drops sharply due to some reasons in the future, we may head towards an economic crisis like the one Greece went through, if the spending on social security is unrestrained,” Khanal said.
According to Khanal, a large portion of the budget being spent on social security means the government has limited resources to spend on constructing vital infrastructure and improving them.
The country’s allocation of resources for social security allowances has sharply jumped at a time when the country’s economy has been hit hard by the Covid-19 pandemic. The economy suffered a contraction of 2.1 percent in the fiscal year 2019-20 and it’s not yet clear without comprehensive figures if the 4 percent economic growth target was met last fiscal year, according to officials.
The government failed to collect the revenue as per the target in the last fiscal year as the collection stood at just Rs829 billion against the target of Rs889.62 billion. As a result, the government has been increasingly relying on domestic and external loans to fund development activities.
The government also faces a resource crunch for fiscal transfers to make provincial and local governments functional.
According to the White Paper titled ‘Information on Current Economic Situation of Nepal’ presented by Finance Minister Janardan Sharma on August 11, Nepal’s debts increased to Rs1,729 billion in the fiscal year 2020-21 from Rs698 billion in the fiscal year 2016-17.
It means, the country’s debt to Gross Domestic Product (GDP) ratio increased to 40.5 percent in 2020-21 from just 22.7 percent in 2016-17.
According to the Finance Ministry, it allocated Rs128.17 billion just to pay principal and interest on government debts for the current fiscal year.
“When over Rs200 billion from the state coffers goes to just repaying loans and social security allowances, the question arises whether it is a sustainable policy,” said Subedi. “Political parties will be more willing to increase the allowance as the elections are just round the corner.”
Before the 2017 elections, the CPN-UML and Communist Party of Nepal (Maoist Centre) forged an electoral alliance and had issued a joint ‘commitment paper’ announcing that social security allowance for the elderly people would be increased to Rs5,000 per month.
While the government, on the one hand, has been increasing social security allowances, on the other hand, the number of beneficiaries more than doubled in the last decade.
According to the Department of National ID and Civil Registration, the number of beneficiaries reached 3.45 million in the last fiscal year compared to 1.56 million in 2010-11.
The number of beneficiaries of social security entitled to get cash transferred to their accounts is around 10 percent of the country’s total population. Nepal’s estimated population as of Wednesday is 30.44 million, according to the Central Bureau of Statistics.
“If the number doubles every 10 years, it will be a huge challenge for the country’s economy,” states the department's annual report for 2019-20.
With the government expanding the scope of beneficiaries over the years, it led to a massive rise in the number of beneficiaries.
The social security scheme was launched in 1994-95 by the government led by Manmohan Adhikari, a CPN-UML leader. The scope of the scheme, which started by providing Rs100 per month to the elderly, was gradually expanded to include single women and people with disabilities in 1996-97.
Members of tribes on the verge of extinction and disabled persons were also added to the list in 2008-09. Dalit children made it to the list in 2010-11 while widows were included in 2011-12.
Dalits from the Karnali region were added to the list in 2016-17 and children from 15 districts with low human development status were made beneficiaries of cash transfers in 2018-19. The number of such districts has gone up to 26 this fiscal year.
The government still needs to put a number of groups on the list of beneficiaries as per the Social Security Act—2018.
For instance, indigent people (persons who earn less than what is specified by the government in a notice published in the Nepal Gazette) and helpless women legally separated from their husbands are yet to be enlisted as beneficiaries despite legal provisions. Currently, only divorced women aged 60 years and above are getting social security allowance.
“Once the remaining groups of people entitled to social security benefits are also listed as beneficiaries, the government will have to increase the resources significantly,” Basnet of the department told the Post. “These provisions have not been implemented yet as it is risky for the government considering the magnitude of resources needed to cover all the beneficiaries.”
According to him, at least 18 percent of the population below the poverty line would be listed as beneficiaries once indigent people are recognised as beneficiaries.
“Their number might have grown after the Covid-19 pandemic,” he said. “Even if around five percent beneficiaries are repeated, 16-17 percent of the population will be added from the current 10 percent of population.”
In order to reduce the cost of social security, the government made an attempt to discontinue social security provisions by issuing the social security regulations in March last year.
Under the regulations, single women below 60 years of age, people with partial disabilities and people who are receiving remuneration, pension, retirement benefits and incentives from the government and foreign government services such as the Indian and British armies were excluded from the social security allowance scheme.
But after protests from the affected people and an uproar in Parliament, the government was forced to roll back the regulations. The government also introduced an ordinance to ensure their benefits would not be snatched away.
Experts say that soaring liability without achieving economic growth and boosting revenue would make the scheme unsustainable.
“The government should increase internal revenue by boosting economic activities and bring the entire social security system under a single umbrella to control leakages and avoid duplication in allowances,” said Subedi, the former finance secretary.
Basnet, the director of the department, says the ultimate goal is to provide succour to the needy citizens.
“Irrespective of the current provision regarding the social security allowances, the main objective of this programme is to help the poor, the helpless and the vulnerable. If well-off families forgo their allowances, it would give an option to the government to provide more to those who are in real need of such support from the state,” said Basnet. “This will also help reduce the resource pressure on the government.”