OverviewCHAPTER
Chapter 6: Progress to Date and Prospects
The final chapter assesses progress on pension reform across countries in non-gulf countries of the Middle East and North Africa and explores socioeconomic factors that could explain the observed differences. Three groups of countries are identified. The first includes countries that are in the very early stages of the reform process or have not yet
Overview 17
initiated discussions: Algeria, Libya, and Syria. The second involves countries where policy discussions are more advanced but where a co- herent strategy has yet to emerge: the Islamic Republic of Iran, Iraq, Tunisia, and the Republic of Yemen. The third group refers to coun- tries that are leading pension reform and have either (a) developed de- tailed reform proposals or laws or (b) introduced important structural reforms, even if these affect only part of the pension system. These countries are Djibouti, Egypt, Jordan, Lebanon, Morocco, and the West Bank and Gaza.
A few patterns emerge from the review of regional experiences: • In countries that are leading reform efforts, the crises of civil servants and
military pension schemes have been an important motivation for reform. This is the case of Djibouti, Jordan, and the West Bank and Gaza. It has also been a push factor in Lebanon, although the lack of a proper pension system for private sector workers was the main driver of reform. In Egypt, the fact that the implicit pension debt of the pen- sion fund is matched by explicit debt with the National Investment Bank (close to 50 percent of GDP) and that the government is already servicing this debt also creates incentives for reform.
• Good analyses and diagnoses have played an important role in putting coun- tries into motion. This is definitely the case in the Islamic Republic of Iran, Jordan (in the case of the SSC), Morocco, and Tunisia. In all these countries, discussions about pension reform within and outside the government started with publication of reports highlighting the problems of the various pension schemes.
• In all countries leading pension reforms, a high-level policy maker or insti- tution has been driving the reform process. Basically, an individual or a group of persons understands the issues, takes the initiative to create awareness about the need for change, proposes solutions, and gener- ates consensus for reform within the government.
• In countries lagging behind, these three elements are not present. In Algeria and Libya, the availability of important oil revenues might be mini- mizing the magnitude of the financial problems facing the pension systems and their effect on fiscal stability.
There are also differences in the political process surrounding pension reforms in various countries. The Islamic Republic of Iran, Lebanon, and Morocco included the civil society in the policy dialogue from the outset. To this end, multisectoral commissions were put in place. Morocco, in addition, took a comprehensive approach to reform that included all pension funds and relevant institutions. On the
18 Pensions in the Middle East and North Africa:Time for Change
contrary, in Djibouti, the policy dialogue and preparation of the reform strategy took place initially without consultations outside the govern- ment. Plan members were not involved until late in the process. No commission was set up to design the reform program. In Jordan, discus- sions are taking place within the SSC, with little coordination between the SSC and the various ministries and other relevant institutions (for example, the Insurance Commission).
There is also considerable variation in reform strategies. Djibouti and Jordan are developing an integrated earnings-related scheme, and Jordan is also developing voluntary private pensions. Morocco is devel- oping two earnings-related schemes, with one integrated defined- contribution, fully funded scheme. Lebanon is proposing an integrated defined-contribution scheme with a basic pension guarantee. A similar approach is being taken in the West Bank and Gaza.
Challenges for the future are necessarily different in the three groups of countries. Among the countries in the early stages of reform, the focus ought to be on preparing the necessary baseline data to conduct a proper assessment of the financial problems facing the schemes. Without this baseline, it is not possible to initiate discussions about the costs and ben- efits of alternative reform packages. In the second group of countries, the immediate goal is to move from strategic guidelines to a detailed reform concept, which will require further analytical work and consen- sus building. The remaining group needs to consolidate an integrated reform strategy and move toward implementation.
In all cases, this report is intended to raise awareness about the need for prompt interventions, thus allowing governments to take a gradual approach toward reform and avoid drastic adjustments in the future. The report also provides an analytical framework to guide discussions about the options for reform as well as the implementation of new laws. In all countries of the region, the time for change is now.
Notes
1. For the purpose of this report, the Middle East and North Africa region refers to the following countries: Algeria, Bahrain, Djibouti, the Arab Republic of Egypt, the Islamic Republic of Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, the Syrian Arab Republic, Tunisia, the United Arab Emirates, and the Republic of Yemen. Also covered is the West Bank and Gaza Strip. Given the availability of data at the present time, however, the analysis concentrates on non-gulf countries (except for non-Arab gulf coun- tries and Bahrain).
2. See World Bank (2002a) for Algeria; World Bank (2003f) for Bahrain; World Bank (2001b) for Djibouti; World Bank (2005c) for Egypt; World Bank (2003d)
Overview 19
for the Islamic Republic of Iran; Robalino, Sluchynskyy, and Bogomolova (forthcoming) for Iraq; World Bank (2003c) for Jordan; World Bank (2005a) for Lebanon; World Bank (2005b) for Libya; World Bank (2004a) for Morocco; World Bank (2003a) for Tunisia; World Bank (2002b) for the West Bank and Gaza; and Mitchell (1999) for the Republic of Yemen.
3. The unemployment figure refers to non–Gulf Cooperation Council countries.
4. A full-career individual refers to a plan member enrolling in the system at age 20 and contributing until the normal retirement age or until the maximum replacement rate paid by the system is attained.