What did the Canadian rating agency DBRS say about the social security reform?

What did the Canadian rating agency DBRS say about the social security reform?

April closed with good news for the government: after several twists and turns and moments that seemed critical for the future of the Multicolored Coalition, the retirement reform whose objective is to guarantee the sustainability of the pension system became law.

Now, almost a month after the milestone for the official administration, the Canadian rating agency DBRS —which last November raised the country’s credit rating to BBB with a stable outlook— highlighted one of the pillars of the reformist agency of the government of Luis Lacalle Pou, although questioned the multiple concessions made to get approval.

The points questioned by DBRS

“The concessions made to ensure the approval of the reform have reduced tax savings relative to the initial proposal of the government, although the extent of the impact is not yet clear,” the Canadian agency said in a statement.

In the text, it refers to the different requirements and conditions of Town meeting and the Colorado Party to which the president had to give in to obtain the necessary votes in Parliament and convert the reform into law. Among them, the modifications in the calculation for the basic retirement salary and the more gradual increase in the minimum age to retire.

“According to the original reform proposal, pension payments were expected to stabilize around 8-9% of Gross Domestic Product (GDP)” compared to an estimate of 10.5% of GDP by 2050 and 11.8% of GDP by 2090 without reform, continues DBRS.

“The main difference between the final reform and the original proposal was the calculation of the profit reduction. The lower tax on social security transfers will also reduce social security revenue. Although the cumulative impact of the concessions is likely to be significant, the amended reform should still generate significant savings relative to a scenario without the reform,” the rating agency said.

According to DBRS Morningstar, the pension reform “seems to be the last great legislative initiative of the government of Lacalle Pou. With general elections approaching in October 2024, the political environment is likely to become less conducive to substantive legislative agreements for the second half of this year.

Something that, in short, is already observed in the growing friction and criticism within the coalition, with Cabildo Abierto as the main protagonist, as the Canadian agency pointed out: “The growing tensions within the government’s multicolored coalitionwhich currently has majorities in both chambers, could limit cooperation and potentially lead to a split in the coalition before the elections,” he added.

“Nevertheless, the Lacalle Pou administration seems willing to leave Uruguay’s public finances in a better position for future governments,” he concluded.

Source: Ambito

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