SSPF's investing through capital may ease social burden in Azerbaijan [COMMENTARY]

Azerbaijan continues to take proper measures to improve the well-being of retirees and to increase the payment. As is known, in April 2023, the Azerbaijani government approved a decree that allowed the State Social Protection Fund (SSPF) to allocate its capital to investment. The decree enables the fund to broaden and diversify its income. The Fund performed proper actions in this direction as soon as the decree came into force, and it gave detailed information about the investment portfolio conducted last year on January 10, 2024.

SSPF noted that in 2023, the fund invested AZN1.5bn ($0.8bn) over a period of more than 5 months. Of which, AZN52.5mn ($30.9mn) was invested in bank deposits, and AZN997.5mn ($586,8mn) was invested in securities.

The positive aspects of this are that it reduces the dependence of that fund on the budget and somewhat lightens the social burden of the state. It also increases the role of the fund in increasing scholarships in the future.

SSPF added that the nominal return on investment was 6-7 percent, and the common rate of return was over 8 percent.

There is no doubt that enabling the SSPF to allocate its surplus capital to different sectors on purpose to gain income is one of the best measures for improving the well-being of retirees, and the positive impacts of the decision have already emerged. Of course, the incomes of investments, i.e., 6 and 8 percent, could be seen as low, but let us not forget that the report covered half a year, and good results in investment are generally gained in the long run. Besides, it was the first experience of the fund, and much better results will be gained in time.

Speaking to Azernews on the issue, economist Eyyub Karimli noted that despite it being a well-known practice in the world, it is new for Azerbaijan. He noted that retirement investment funds have a number of positive aspects.

“First of all, it reduces the dependence of that fund on the budget. Secondly, it lightens the social burden of the state. It will also enable SSPF to increase retiree payments in the future,” the economist said.

He also touched on the issue of the income of SSPF and noted that 6–8 percent of income per year is suitable, taking into account of current banking and financial sector in Azerbaijan. He recalled that today most of the banks prefer to offer 8 percent deposit interest.

“In this case, I think that the annual income of SSPF is suitable for the conditions of Azerbaijan. However, it is also necessary to admit that this income can be further increased by diversifying the investment policy. SSPF will likely do so in the future. I should also mention that the state should also control this. Investments are not always successful. That's why I say that the implementation of all these processes under control allows for positive results.