A new strategy for reforms, a new budget, and the same political uncertainty
On August 25, the President announced a national dialogue commencing in November, which includes topics such as the reform of the public pension plan, the rationalization of water, education, efficiency of national health services, and the Constitution. Our estimate for the timetable of the debates is four to five months. A second phase is the "regionalization" of the proposals across the country. The process may last until November 2021. Still, some, if not all the conclusions will need legislative approval; therefore, we anticipate that in 2021 discussions will continue, but there will be few specific actions. The leitmotif of the Dialogue is the possible path of the reform of the public pension plans.
The size of the public pension program's deficit is finally known after the publication last week of the actuarial report performed by the CSS's Technical Board. The difference between current revenues and current pension payments will be around 1.5 percent of GDP in 2020 (US$ 869 MM), which could be financed either by reducing the accounting reserves of the defined benefits sub-program or introducing parametric changes. The latter will not be feasible before the Dialogue concludes.
By 2026, even assuming a steady spike in the economy's growth and the consequent increase in CSS revenues, the reserves will be depleted. Therefore, the full payment of the pensions must be paid by the Central Government (more than one billion dollars) or 1.3 percent per year.
The Legislative Assembly approved the 2021 public sector budget on Wednesday. The projected Central Government deficit (US$ 4,829.3 million) is equivalent to 7.7% of GDP if we apply a 9% drop in the economy in 2020 and 4% growth in 2021 per the MEF. Gross financing needs are US$ 6,967 million. The NFPS deficit implicit in the budget is 7.6% of GDP, consistent with the Fiscal Responsibility Law's recently approved limit.
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