Michalis Persianis: The need for revision and where the Social Insurance Fund could turn for investment

Warning that the government's debt to the Social Insurance Fund (SIF) has now "reached dangerous levels", the Cyprus Fiscal Council has called on the state to review the investment policy applied to it.

The Council goes on to suggest that the state adopt the findings of the International Labor Organisation’s actuarial study regarding the SIF’s sustainability.

Today, at a rate of 98.6%, SIF's assets are mainly invested in non-marketable government deposits, while the remaining assets are invested in medium-term government debt (bonds) and cash deposits in Cypriot commercial banks.

The actuarial study, the recommendations of which completely coincide with the views of the Fiscal Council, suggests examining the possible increase in the percentage of SIF's assets invested in non-government securities, with the aim of enhancing the diversification of its investment portfolio and achieve higher yields.

At the same time, it favours the formulation of a written financing policy, in order to ensure that social security rights will be financed in a fair and sustainable way.

Speaking to InBusinessNews, the Chairman Council, Michalis Persianis, indicated that, essentially, the study falls in line with the views of the Fiscal Council and this is something that the government should take seriously.

Asked where investments could be made, Persianis pointed to renewables, energy, investments related to the environment and its protection, as well as other examples of investments abroad, which could also fix part of the problem of the balance of payments.

“A written investment policy must be developed. Although current expenditure is incurred, expenditure could be made on infrastructure projects and investments, which will ultimately bring about multiple benefits to society. That is, to convert the expenses from current to capital, so that in the long run we will benefit," he specified.

According to Persianis, the assumptions of the study are realistic, since, as he said, important variables are taken into account, such as immigration, the aging of the population, the decrease in the birth rate, etc.

SIF's debt is at €10.7 billion

Today, the government's debt to the Social Insurance Fund stands at close to €10.7 billion, a number that translates to about 30% of GDP, while it grows month by month.

Essentially, this comes about as the state borrows money from the workers' fund, which has been a standard practice of governments for years.

It is worth noting that this phenomenon also occurs in other countries, with Cyprus however standing out for the fact that this is an "established" and permanent practice.

The Minister of Labor and Social Insurance, Yiannis Panayiotou, in his recent public statements, reassured that the Fund is sustainable.

On his part, the Chairman of the Fiscal Council, Michalis Persianis, emphasised to InBusinessNews that the problem is mostly of a fiscal nature and reassured that the SIF is not in immediate danger.

"But we have a serious imbalance, a practice which creates fiscal distortions," he added.

Finally, he stated that while it is not inappropriate for the state to borrow from the SIF, it is, however, preferable not to do so, as it creates a moral hazard in the management of the public debt and for this reason it would be good to avoid it.

(Source: InBusinessNews)