Richard Byarugaba, the NSSF Managing Director
The ongoing international economic crisis arising from the Russia-Ukraine conflict will have its impact extend to the interest rates to be paid by the National Social Security Fund (NSSF) to its members at the end of this accounting year.
Richard Byarugaba, the NSSF managing director, revealed that the economic crisis has led to record high inflation the world over, and has greatly reduced the money value leading to many stringent decisions. He had just addressed journalists at the fund’s commissioning of a modern housing estate at Lubowa on Entebbe road.
According to Byarugaba, the money value going down affects the fund’s investments, and also foreign investors leave the market, which reduces the prices of stocks and investments, and all of these impact the rate the fund offers;
By law, the decision on the NSSF interest rate which is credited to its member’s accounts every financial year, is dependent on the fund’s financial performance in that given year, relying on the returns from all its investments. It is declared by the finance minister by 1st October.
To accrue reasonable returns for its members, the fund mainly makes long-term investments, seeking income from fixed assets like real estate, equities, interest income, dividends from shares in various companies, and also bills and bonds.
The other and the largest source of the fund’s return sources are the capital gains, which it receives alongside the rate for real estate, and dividends for companies’ shares. The fund also makes returns from currency movements, which arise from investing in assets denominated in foreign currencies. Therefore, the fund makes money whenever the denominating currency gains value.
The annual interest rate declared by the minister is arrived at through a distributed computation of all the returns, those realized in cash, and those yet to be. In its declarations, the NSSF aims at maintaining a 2 percent premium above the country’s 10-year inflation average.
Although since the covid-19 pandemic hit the world most economic activities slowed down and returns declined, the fund has maintained a double-digit interest rate all through. Now the question is on how deeply this crisis will impact the rate to be declared next month.
Records show that in the last ten years, the Fund has not paid any amount below 10 percent, and the highest has been 15 percent in 2018. Even in the two years of lockdown, the fund paid 10.75 percent in 2020, and 12.15 in 2021.
The 12.15 interest rate is way above the 5.43 percent inflation average for the last ten years ending 2021. During the 2021 interest rate declaration, the fund’s total assets were valued at 15.5 trillion, and these had increased from 13.3 trillion in 2020. This interest rate is worth 1.52 trillion shillings, the Finance Minister Matia Kasaijja said.
Against such a background, the question is on how this crisis will impact the rate to be declared next month. At 9 percent in August, the country’s inflation rate recorded its monthly highest since 2015 .
-URN
