Pension, interest on savings tools cannot be included: IMF

The government must not include pensions and the interests on savings tools in the budget allocation for the social safety net sector, the visiting team of the International Monetary Fund (IMF) have told officials concerned.

The IMF team also asked officials to increase the allocation for the sector, excluding savings certificates and pensions, in the coming budget for the fiscal year 2023-34 (FY24).

Members of the IMF staff mission made the recommendations in a meeting with the Finance Division on Thursday, said sources familiar with the matter.

According to sources, the IMF has outlined a plan to increase social security over the next three years un-der the terms of its Extended Credit Facility (ECF) loan.

However, Finance Division officials said social security will be extended as per the decision of the cabinet committee concerned. If the matter is handled according to the IMF conditions, the government will be under financial pressure.

The IMF staff mission is currently visiting Dhaka to review the implementation progress of its reform condi-tions under the $4.7 billion loan programme for Bangladesh. Of the total loan, the international lender approved $3.3 billion under its ECF and Extended Fund Facility (EFF) arrangements and $1.4 billion under the new Re-silience and Sustainability Facility (RSF).

Before approving the loan under ECF, the IMF, in a meeting with the government, had suggested excluding interests on savings certificates from the total social security allocation.

According to the IMF outline, the government needs to spend Tk 60,500 crore on social security pro-grammes by March 2023 and Tk 1,33,000 crore by June.

Similarly, by September of this year, the government needs to spend Tk 1, 55,000 crore on social security and another Tk 30,990 crore in December.

However, the government plans to spend more than the IMF recommended amounts in the sector in both the current and the next fiscal years.

According to sources, the IMF staff mission sought to know from the Finance Division whether the coun-try’s social security programme has been able to satisfy everyone, meaning, whether the programme is compliant with their conditions.

Finance Division officials responded positively to the query and said future social security programmes will also be compliant with the conditions.

Seeking anonymity, Finance Division officials told The Business Post that the social security programme refers to two sectors of the country - education and health.

“But we have brought five ministries, including the social welfare ministry, under the social security sec-tor,” said one official.

“The IMF has asked us not to include government officials’ pension expenses and interests on savings cer-tificates in social security. But we have good logic for our stance on the matter. So, the government treats the expenditure on pensions as social expenditure,” added the official.

Explaining the government’s decision, the official said, “Government officials and employees need money to live their lives after retirement. Besides, those who cannot invest money in any other sector, especially the elderly, buy savings certificates. Through this, the government has fulfilled a social responsibility. IMF officials do not seem to understand this.”

In the current fiscal year, the government allocated Tk 28,037 crore for the pension of retired government employees and Tk 7,907 crore for interest subsidy on savings certificates.

In total, the allocation for the social safety net sector is Tk 1,13,576 crore or 2.55 per cent of the gross domestic product (GDP).

The allocation for the sector will be increased in the coming fiscal year. In FY24, the allocation for the sec-tor has been proposed to be kept at Tk 1,30,000 crore or 3 per cent of the GDP.

Meanwhile, in another meeting, the IMF team queried about the payment system of the government, in-cluding clarification on the iBAS++ system.