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Monday, January 9, 2017
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MANILA – The stable interest rate regime could be threatened by the proposal of the Congress to increase the monthly pensions of Social Security System (SSS) beneficiaries starting this January without a corresponding increase in members’ contributions, Finance secretary Carlos Dominguez III claimed on Friday.
However, the Department of Finance (DOF) also said that as long as the country’s macroeconomic fundamentals are intact, the Philippines will continue to enjoy low interest rates.
Maintaining good macroeconomic fundamentals is the best way to keep interest rates down even if the US Federal Reserve raises its key policy rate, the department said in a statement.
“The across-the-board increase in SSS monthly pensions without a corresponding adjustment in the contributions of the members would reduce the fund life of the SSS, possibly prompting a downgrade in our credit rating,” Dominguez said.
In a memorandum sent to President Duterte on Dec.15, Dominguez and his fellow economic managers – Budget secretary Benjamin Diokno and director-general Ernesto Pernia of the National Economic and Development Authority – said that without an accompanying “upward adjustment or restructuring of the contribution rate,” the proposed SSS pension hike would unduly jack up the unfunded liabilities of the pension fund from P3.5 trillion to P5.9 trillion.
“The SSS Reserve Fund, which is tapped when contributions of SSS members are not enough to cover the benefit payments made to its members, is currently projected to last until 2042. The proposal by the Congress] is foreseen to cut the actuarial life of the fund by 14 to 17 years from 2042 to 2025-2028,” according to the joint memo to the President.
If approved, this congressional proposal “may adversely affect the Republic’s credit rating,” and the “SSS would be bankrupt and left with no funds for other members in the future,” the Cabinet officials noted in the joint letter to the President.
In the same statement, Finance undersecretary and chief economist Gil Beltran noted the Duterte administration has the capacity to dampen the effects of the impending normalization of US interest rates. (GMA News)
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