This archive report was first published on 21 August 2021.
Uganda's National Social Security Fund (NSSF) is navigating a delicate situation as the government considers providing mid-term access to benefits for middle-aged savers struggling due to the Covid-19 pandemic.
Under the proposed arrangement, contributors who have saved for over 10 years, are above 45 years old, and have lost their jobs, will be allowed to withdraw 20% of their savings held by the state-controlled social security agency.
President Yoweri Museveni has backed amendments to the NSSF Act of 1985, which favour mid-term access to benefits for savers below the eligibility age of 55 years. However, a draft of legal changes related to this law is still being considered by the Attorney-General's Office before being tabled in parliament for debate.
Approximately 100,000 savers out of the two million NSSF contributors are expected to benefit from mid-term withdrawals, valued at Ush1 trillion ($281 million). A portion of this, Ush200 billion ($56.3 million), is attributed to interest earned on members' accounts, according to NSSF data.
Richard Byarugaba, NSSF Uganda managing director, warned that about Ush300 billion ($84.4 million) would be needed to clear the first batch of mid-term access beneficiaries, estimated at 30%, due to an anticipated rush to cash out on the mid-term benefits scheme. This would lead to a budget shortfall of about Ush200 billion ($56.3 million) during the first month of implementation.
Financial analysts, however, have disputed the Fund's worries over financing of mid-term benefits, insisting the government's debt markets are less hostile than perceived. They suggest that the Fund could consider a clause in the amended NSSF Act that gives it up to six months or one year to consider mid-term access benefits applications at its discretion.
Benoni Okwenje, general manager for financial market operations at Centenary Bank of Uganda, noted that the Fund grows by Ush1 trillion ($281 million) every year, with half of that figure being interest income alone. He added that commercial banks are sitting on excess liquidity of Ush2.6 trillion ($731.4 million) today and are willing to absorb all the government securities that the fund wants to dispose of at reasonable interest rates.
