Latest loan won't plug ZUS hole - Social Insurance Office still needs billions in unbudgeted zlotys
Even though it won a zl. 4 billion ($1 billion) bailout package from the government last week, the Social Insurance Office (ZUS) could still need billions more in unbudgeted zlotys next year to make up for contribution shortfalls, the Business Journal has learned.
ZUS President Stanislaw Alot said on Friday that the agency would need an extra zl. 3.5 billion ($875 million) in state subsidies in 2000 in addition to the amount the Finance Ministry has already budgeted.
While the Finance Ministry already intended to subsidize ZUS next year to the tune of zl. 13 billion ($3.25 billion), Alot said the ministry's overestimation of collection rates for pension payments as well as the decision by a greater-than-expected number of people to join the new pension scheme will cause the funding gap.
ZUS and the ministry are expected to battle over collection estimates at a government meeting this week.
Economists last week generally agreed with Alot's estimation that ZUS would be coming back to the government for additional funds next year.
"I am afraid that ZUS's shortcoming are still underestimated," said Krzysztof Dzierzawski, an analyst with Warsaw-based think tank the Adam Smith Research Centre. "And for the next couple of years we will see ZUS in need of subsidies to (cover) its financial gaps."
In addition to the zl. 4 billion loan the Finance Ministry agreed last week to grant ZUS, the agency earlier this year also borrowed zl. 2.8 billion ($700 million) from commercial banks to cover pension payments. The zl. 4 billion will come from privatization revenue.
ZUS has experienced a severe cash crunch as it tries to balance the payments it must make to the privately managed pension funds created under pension reform this year with its ongoing obligations to existing pensioners.
The zl. 9.6 billion ($2.4 billion) that the Finance Ministry had set aside to subsidize the reform has proven inadequate this year, and Alot said that same situation will occur in 2000. Once again, the Finance Ministry's budgeted subsidy of zl. 13 billion ($3.25 billion) will be inadequate to cover the financial hole created by pension payments being moved to the privately managed funds.
"Plans for the 2000 budget are again kind of wishful thinking, which is to make macroeconomic factors look better," Dzierzawski said.
The gap stems from the difference in what the Finance Ministry estimated ZUS would collect in pension payments and what the agency has actually managed to pull in. Several key sectors of the economy, such as troubled coalmines and indebted state railway PKP, have been unable to make their pension payments.
In the draft of the year 2000 government budget, the Finance Ministry estimated ZUS would be able to collect 98.9% of required pension payments that year.
Alot, however, said that expectation is unrealistic. "Even if we assume that in 2000 the economy will develop better than this year, according to our estimates, the collection figure could reach 97%, at best," he said.
That 1.9% discrepancy between the ministry's estimates and ZUS's calculations adds up to zl 1.5 billion ($375 million), Alot said. The remaining zl. 2 billion ($500 million) of the estimated shortfall next year comes from the extra money that will be needed to cover the individuals who are expected to join the new pension scheme as opposed to the old, pay-as-you-go system.
While it is mandatory that individuals under 30 years of age join the new pension system, and that people over 50 stay with the old regime, those in the middle can choose between the two.
"And that may seriously cut ZUS's revenues, as one fourth of pension fees would go to various pension funds," Dzierzawski said.
So far, 7.2 million people between the ages of 30 and 50 had signed on to the new system, Alot said. That number is expected to reach 8 million by the end of this year. "So we will need at least zl. 2 billion extra for pension funds," he said.
For those reasons, the zl. 13 billion the Finance Ministry intended to use to subsidize ZUS next year likely will not be enough.
ZUS's funding woes are compounded by the fact that it will also have the zl. 2.8 billion in bank loans to pay back next year. Alot said ZUS originally estimated the cost of those loans to amount to zl. 150 million ($37.5 million). "Part of the loan's costs will be paid form the zl. 4 billion budget loan, but part of it will be moved to next year's spendings," he said.
The Finance Ministry had hoped that ZUS's house would be in order by next year, and that the agency wouldn't wreak havoc with the budget.
Ryszard Petru, adviser to Finance Minister Leszek Balcerowicz, admitted that ZUS and the ministry were both shortsighted when it came to anticipating the collection problems caused by ailing industries such as coal mines. But he argued that the the Finance Ministry never trusted figures presented by Alot.
Alot has been under fire since the beginning of the year for what is seen by many as his agency's failure to meet the demands of pension reform. The agency was supposed to have a new computer system in place, installed by IT company Prokom, that would accurately track payments and individual contributions. That system, however, has been perpetually delayed.
"ZUS has no accounting at the moment and it keeps moving the date of final launching of the computer system. Now it's talking about sometime next year," Petru said.
The lack of that system, coupled with the funding problem, has resulted in ZUS only transferring one-fourth of the money that should have been allocated to the privately managed funds so far.
Balcerowicz first began demanding Alot's dismissal earlier this month, and he continued that call last week.
Alot's critics in the government argue that ZUS's president should have leaned harder on Prokom to get the system in place and that he has been unable to effectively manage the agency. Last week, an extraordinary parliamentary committee for pension reform accepted a proposal by opposition party Democratic Left Alliance (SLD) to dismiss Alot.
Despite the furor, Alot said he doesn't intend to step down. "The (Finance) Ministry could have expected such problems already in March when it was obvious that, despite its predictions, the coal mines would not pay," he said.
