Aurelia Butler

(Reuters) – The forecast for Social Security got a bit more cloudy last week, with the program’s trustees projecting that the critical retirement program will run short of cash one year earlier than had been forecast last year.    But if the headlines stemming from the annual report of the Social Security trustees jangled you, take a deep breath.The report, released on March 31, forecasts that the Social Security retirement trust fund reserves will be depleted in 2033. A separate report found that Medicare’s financial situation improved a bit last year.But Social Security finished 2022 with $2.7 trillion in reserves, and it can pay full benefits for another 10 years, according to the report. Still, the program is on course for sharp across-the-board benefit cuts in 2033, absent action by the U.S. Congress.What does the new Social Security forecast mean for current and future retirees? Here are the key questions to consider. Q: What does “depletion” mean in the context of Social Security? A: Social Security is financed on a pay-as-you-go basis. Benefits are funded mainly by the Federal Insurance Contributions Act (FICA) tax, which collects 12.4% of wages, split evenly by workers and employers. But the trust fund also can accumulate balances when Social Security runs surpluses, as has been the case for the last several decades. However, costs now are exceeding income as the baby boomer retirement wave accelerates. Another contributing factor is lower fertility rates in the U.S., which means we have fewer workers paying in to the system. Income inequality also plays a role.The forecast depletion date often fluctuates a bit from year to year as the trustees re-evaluate the economic conditions that impact the program. This year, the downward revision was chalked up to lower labor productivity and economic growth.Q: You mentioned that income inequality contributes to the problem. How so?A: Social Security collects FICA contributions only up to a certain level of wages – $160,200 this year. In recent years, the largest increases in wages have been above that level, so a smaller share of the U.S. wage base is being taxed. The trustee report forecasts that this trend will continue over the coming 75 years. The costs to Social Security are substantial. Each drop of 1 percentage point in the share of total earnings subject to FICA reduces revenue by $12.6 billion, according to an analysis by the Economic Policy Institute (https:// Q: What happens if we get to the point where the trust fund is depleted?A: At that point, the current revenue coming in would be sufficient to pay 77% of promised benefits, according to the report. In other words, there would be an immediate, across-the-board benefit cut of 23% – not only for current retirees, but for workers who retire down the road.Q: Is it possible for Social Security to tap other sources of government revenue?A: Under current law, no. The program must be financed solely from the trust fund, and it cannot borrow. That means Congress needs to enact legislation that would increase revenue, cut benefits or some combination of the two.Q: What if Congress does not get its act together?A: The closer we get to 2033, the less likely we are to see benefit cuts. Benefit reductions typically are phased in slowly for future beneficiaries, so the impact of any cuts would not be adequate to achieve solvency. “We’ve delayed so long that there are no plausible benefit reductions that can keep the trust fund from running dry in the 2030s,” said Andrew G. Biggs, a senior fellow at the American Enterprise Institute.At the point of a 2033 crisis, an emergency injection of new revenue is most likely, said Paul N. Van de Water, senior fellow at the Center on Budget and Policy Priorities. “Congress could allow the program to continue running deficits by changing the law to credit Social Security with additional income – in effect, it would be financing the program through borrowing.”That solution would avert the sharp benefit cuts, but it would further fuel public worries about Social Security. A 2020 AARP poll found that 57% of respondents are not confident about the future of Social Security, citing a lack of trust in government to keep its promises and that “money is running out.”Q: So what are the alternatives?A: Democrats generally favor shoring up Social Security’s finances by adding new taxes on the wealthy. Republican positions vary. The populist wing of the party has adopted a “don’t touch Social Security” approach but has not spelled out how they would address the 2033 solvency forecast; conservatives in the House of Representatives have called for significant benefit cuts for all but the lowest-income workers by gradually raising the full retirement age (when you can receive 100% of your earned benefit) to 70, and through changes to the benefit formula that would sharply cut benefits for middle-income and affluent workers. No consensus is in sight among lawmakers – but the public does have a clear position. The AARP poll found that a majority of Democrats, Republicans and independents agree that “it would be better to pay more into Social Security now to protect benefits for future generations.” And a Quinnipiac University poll published last week found that 78% of Americans would oppose raising the full retirement age for Social Security from 67 to 70.“If Congress did what the American people want them to do, they could get it done tomorrow,” said Nancy Altman, co-director of Social Security Works, a progressive advocacy group.  The opinions expressed here are those of the author, a columnist for Reuters. More

COLOMBO (Reuters) -Sri Lanka’s central bank kept interest rates steady on Tuesday and expressed optimism that prices would decelerate sharply in the coming months, in its first policy decision since securing a $3 billion bailout from the International Monetary Fund.The Central Bank of Sri Lanka (CBSL) held its standing deposit facility rate and standing lending facility rate at 15.50% and 16.50%, respectively.”The maintenance of the prevailing tight monetary policy stance is necessary to ensure that monetary conditions remain sufficiently tight to facilitate the continuation of the ongoing disinflation process,” the CBSL said.Central bank Governor Nandalal Weerasinghe said a favourable base effect would kick in from next month while reductions in fuel prices would help achieve a faster pace of disinflation going ahead.”We are confident inflation will come down to single digit levels by end-December,” he said.CBSL last raised rates by 100 basis points in early March – its first increase in seven months – as part of efforts to finalise a four-year IMF programme to help the island emerge from its worst financial crisis in more than seven decades. The central bank’s rate decision was largely in line with expectations following a stubborn inflation reading of 50.3% in March.”Key message covered seems to be that CBSL expects the domestic debt restructuring announcement to reduce the risk premia attached to yields. So far markets have moved in line with that expectation,” said Thilina Panduwawala, head of research at Frontier Research.Any easing of rates will likely happen around September or October, analysts polled by Reuters said, broadly in line with the central bank’s predictions.Headline inflation will stabilise at desired levels over the medium term, CBSL said in its policy statement.Separately, the financially strapped South Asian country has said it would start formal negotiations to restructure the debt it owes to bilateral creditors and overseas bondholders after its domestic debt operation, aiming to complete these parallel debt talks by September, in time for the first IMF review.Weerasinghe said he was keen for the debt talks to be concluded as soon as possible. Sri Lanka will kick off a reworking of part of its domestic debt next month and aims to finalise it by May. More

The World Bank now expects Pakistan’s economy to grow 0.4% in the current year, from its October forecast of 2% growth. The bleaker forecast assumes an agreement is reached with the International Monetary Fund for bailout funds, it said.Pakistan’s fiscal year starts from July and runs through June. Pakistan expects its economy to grow 2% in FY23, however, the country’s central bank chief said in January the growth forecast could face downward pressure.The South Asian nation has been in economic turmoil for months with an acute balance of payments crisis while talks with the IMF to secure $1.1 billion funding as part of a $6.5 billion bailout agreed in 2019 have not yet yielded fruit.Lower economic output and high prices in Pakistan have led to stampedes and looting at flour distribution centres set up across the country.”Elevated global and domestic food prices are contributing to greater food insecurity for South Asia’s poor who spend a larger share of income on food,” the bank said.The World Bank lowered its 2023 regional growth forecast to 5.6% from 6.1% in October.”Rising interest rates and uncertainty in financial markets are putting downward pressure on the region’s economies,” the report said.Most countries have raised interest rates at a rapid pace since the war in Ukraine last year lead to choking supply chains and stoked inflation globally.The World Bank forecast Sri Lanka’s economy will contract by 4.3% this year, reflecting the lasting impact of the macro debt crisis, with future growth prospects heavily dependent on debt restructuring and structural reforms.Sri Lanka follows the calendar year. In January, President Ranil Wickremesinghe said Sri Lanka’s economy could contract by 3.5% or 4.0% in 2023 after shrinking 11% last year.  Inflation in South Asia is set to fall to 8.9% this year, and to below 7% in 2024, the World Bank said.The World Bank also lowered its forecast for India’s economic growth in the current fiscal year that started on April 1 to 6.3% from 6.6% as it expects higher borrowing costs to hurt consumption. More