The International Social Security Association (ISSA) carried out a survey which was designed to collect quantitative and qualitative information from social security administrations about a number of operational issues linked with, and policy responses (implemented or planned) in response to, the financial and economic crisis that struck the world in 2007. A total of 86 ISSA member organizations from 68 countries responded to the survey.
Overview of the impact of the crisis on social security financing
- The majority of social security administrations experienced financing difficulties as a result of the crisis.
- High-income countries were the most affected by the crisis and had negative performances in their investment portfolios 2008 ranging from -30.6 per cent (Ireland) to - 3.2 per cent (Denmark).
- By the end of 2008, the most important funds experienced combined losses in their assets under management of about USD 225 billion.
- Losses were however unrealized. Most funds were able to recover part of their original value once stock markets recovered.
- Diversification of fund assets failed in most cases to protect portfolios and, even more importantly, international diversification actually worsened the situation and generated deeper losses.
- Most funds have now recovered to their pre-crisis levels.
- The crisis illustrates the risks of funding social security programmes from sources that are dependent on the performance of capital markets.
Government responses to the crisis
- The survey confirms that the majority of national governments provided assistance to financial institutions or adopted other economic recovery measures.
- The majority of social security administrations report that their national governments included some provision for social security within their national crisis response measures.
- On average, measures directed to social security represented 12 per cent of national stimulus packages.
- Coordinated national stimulus packages and the stabilizing effect of social security limited the economic and social consequences of the crisis.
- If stimulus packages are discontinued prematurely, experts warn that there is a danger that a double-dip recession could emerge.
- While the need to reduce fiscal deficits built up during the time of the crisis is important for governments, the long-term impact on unemployment and social expenditure, and the erosion of the tax bases, could be considerable.
Impact of the crisis on labour markets
- A majority of countries experienced an increase in unemployment and therefore adopted a wide range of measures to address this increase.
- A number of short to mid-term measures were introduced to deal with the impact of increased unemployment.
- For some social security institutions, the crisis was used as an opportunity to extend coverage (South Africa) and bolster the adequacy (Russian Federation) of their benefits.
- Social security administrations estimate that they will have to contend with the consequences of the crisis for labour markets for 2-4 more years.
- A number of social security administrations made special provisions for vulnerable groups.
- Depleted fund reserves, diminished income and increased expenditure on benefits were the main consequences of the crisis experienced by administrations.
- Social security played a crucial role by sustaining the economy through maintaining public confidence and therefore stimulating aggregate demand. Arguably, social security contributed to reducing the potential for significant social unrest.
- Financing difficulties look set to persist for the foreseeable future as a result of a protracted labour market crisis, and debts incurred now will constitute a financial burden for many years to come.
- If there are future financial or economic shocks (e.g. in the case of a double-dip recession) in the near-term, there is concern that government finances, as well as the financial reserves of social security funds, would be unable to bankroll the necessary response measures on a scale comparable with that witnessed in the last few years.
- The crisis has underlined the value of social security as an effective response to crises and also as a social intervention integral to the smooth functioning of decent societies.
- Social security administrations have demonstrated their capacity to be actors in response to the financial and economic crises.
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