Pension Schemes and Pension Reforms in the Middle East and North Africa

Abstract

Most countries in the Middle East and North Africa (MENA) region spend a considerable share of their national income on social protection. In Egypt and Jordan, for example, this share ranges between 20 and 25 %. Most of the money, however, is used for social protection instruments that suffer from severe deficits with regards to equity, efficiency and financial sustainability. Especially, the public pension schemes of the MENA countries are characterised by (i) low coverage rates, (ii) regressive redistribution from the poor to the urban middle class, (iii) high administrative costs, (iv) unsustainable benefit conditions and (v) inefficient investment policies.

The question is thus what the governments in the MENA region have done so far to remove the existing deficits and how the prospects are for more profound reforms in the future.

This article discusses both questions. It shows that the MENA countries have implemented hardly any noteworthy pension reforms in the past and argues that this reluctance is mainly due to political considerations of the ruling regimes as well as to the fact that most MENA countries have until now been able to finance the deficits of their pension schemes. The article concludes that the prospects of reforms that go beyond simple changes in contribution rates or pension formulas remain bleak.

The article has five sections. Section 1 presents the economic, social and political background of pension policy and pension reform in the MENA region. Section 2 analyses the main deficits of the existing public pension schemes and their implications with regards to social and economic criteria. Section 3 looks into past efforts to reform pension policies in selected MENA countries. Section 4 is meant to explain the lack of more fundamental pension reforms until now while assumptions are formulated in Section 5 on the prospects of future reforms. Section 6 concludes with lessons to be drawn from the experience of MENA countries for pension reforms in other parts of the world.

Keywords: pensions, social security/protection, old-age protection, social insurance, political economy, Middle East and North Africam Egypt, Jordan, Tunisia, Algeria, Libya, Bahrain

JEL Classification: P16, H53, H55, I30, G22, E62