OIT - The formation of a National Unemployment Benefit Fund in Eswatini

X The formation of a National Unemployment Benefit Fund in Eswatini Assessing Options for the Institutional Framework and operation of the scheme Author / Ole Beier Sørensen

September / 2025 ILO Working Paper 148© International Labour Organization 2025 Attribution 4.0 International (CC BY 4.0) This work is licensed under the Creative Commons Attribution 4.0 International. See: https:// creativecommons.org/licenses/by/4.0/. The user is allowed to reuse, share (copy and redistribute), adapt (remix, transform and build upon the original work) as detailed in the licence. The user must clearly credit the ILO as the source of the material and indicate if changes were made to the original content. Use of the emblem, name and logo of the ILO is not permitted in connection with translations, adaptations or other derivative works. Attribution – The user must indicate if changes were made and must cite the work as follows: Sørensen, O. The formation of a National Unemployment Benefit Fund in Eswatini: Assessing Options for the Institutional Framework and operation of the scheme. ILO Working Paper 148. Geneva: International Labour Office, 2025.© ILO. Translations – In case of a translation of this work, the following disclaimer must be added along with the attribution: This is a translation of a copyrighted work of the International Labour Organization (ILO). This translation has not been prepared, reviewed or endorsed by the ILO and should not be considered an official ILO translation. The ILO disclaims all responsibility for its content and accuracy. Responsibility rests solely with the author(s) of the translation. Adaptations – In case of an adaptation of this work, the following disclaimer must be added along with the attribution: This is an adaptation of a copyrighted work of the International Labour Organization (ILO). This adaptation has not been prepared, reviewed or endorsed by the ILO and should not be considered an official ILO adaptation. The ILO disclaims all responsibility for its content and accuracy. Responsibility rests solely with the author(s) of the adaptation.

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ISBN 9789220423349 (print), ISBN 9789220423356 (web PDF), ISBN 9789220423363 (epub), ISBN 9789220423370 (html). ISSN 2708-3438 (print), ISSN 2708-3446 (digital) https://doi.org/10.54394/GLUW7420

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Authorization for publication: Alexio Musindo Director ILO Decent Work Technical Support Team for Eastern and Southern Africa and Country Office for South Africa, Botswana, Eswatini and Lesotho ILO Working Papers can be found at: www.ilo.org/research-and-publications/working-papers Suggested citation: Sørensen, O. 2025. The formation of a National Unemployment Benefit Fund in Eswatini: Assessing Options for the Institutional Framework and operation of the scheme, ILO Working Paper 148

(Geneva, ILO). https://doi.org/10.54394/GLUW742001 ILO Working Paper 148 Abstract The report assesses options as regards the management and operation of a new Unemployment Benefit Fund (UBF) in Eswatini. Two institutions have been proposed by the Government as potential operators – the Public Sector Pension Fund (PSPF) and the Eswatini National Provident Fund (ENPF). Based on an analysis of the UBF business processes and its purpose: the fact that it presents a range of new challenges and requirements, as well as its nature as a short-term social insurance scheme, the report concludes that the best solution is for UBF to be an independent entity allowed – but not required – to let its operation or parts thereof be undertaken on a contractual basis by one or more other public entities. The second-best solution is to have the UBF operated by an existing entity, in which case the ENPF stands out as the best choice as

pendent entity allowed – but not required – to let its operation or parts thereof be undertaken on a contractual basis by one or more other public entities. The second-best solution is to have the UBF operated by an existing entity, in which case the ENPF stands out as the best choice as it has key elements of the required infrastructure and competences in place already. However, the ENPF will need to be adapted to a new and broader role to ensure good and adequate governance and the necessary integrity and transparency for the exercise.

JEL codes: Key words: Unemployment insurance, sickness insurance, maternity insurance, social insurance operation.

About the author Ole Beier is an independent international expert and consultant working through his own company Beier Research. Mr. Beier and his company offers research and analysis and high-level expert advice on pension policy, labour market policy, pension design, pension management, and governance. Mr. Beier has contributed to pension reform efforts in many countries on behalf of the European Commission and the ILO as Project Leader. Also, he has undertaken bespoke technical research projects for a wide range of private clients in Scandinavia. Before starting his consultancy business Mr. Beier served at the OECD as Senior Private Pensions Expert, and he worked for 20+ years as Chief of Strategy and Research and Senior Pension Researcher with the Danish public pension fund ATP .02 ILO Working Paper 148 Abstract 01 About the author 01 Acronyms 07 Executive Summary 08 Five recommendations and conclusion 08 The scope of the assessment 09 Modalities for a UBF 10 Operating the UBF 10 Two institutions as potential UBF host institution 11 The two institutions and UBF operation 12

Answering the question: Which institution is best fit to operate the UBF? 12

X Introduction 14 X 1 UBF - structure, operation, and governance 16 1.1. The UBF as per the current draft law 16 1.2. Some assumptions and principles 17 1.2.1. The financing of the UBF 17

X Introduction 14 X 1 UBF - structure, operation, and governance 16 1.1. The UBF as per the current draft law 16 1.2. Some assumptions and principles 17 1.2.1. The financing of the UBF 17 1.2.2. Good governance and transparency are critical 18 1.2.3. Self-sustained financing 18 1.2.4. The UBF must cover the entire formal labour market 19 1.3. UBF legal framework and oversight 19 1.4. The reform effort needs to be strengthened 20 1.5. African peer examples 22 1.5.1. Morocco 22 1.5.2. Tanzania 23 1.5.3. Ghana 25 X 2 Contributory social insurance – some principles 26 2.1. Insurance risks, insurance collective, and insurability 26 2.2. Good governance 27 2.3. Transparency versus adaptability 28 2.4. Financial sustainability 29 2.5. Operating the UBF 30 2.5.1. UBF tasks 30 2.5.2. Synergies and economies of scale 32 Table of contents03 ILO Working Paper 148 2.5.3. New operational requirements 32 2.5.4 Challenges facing any UBF operator 33 2.6. The choice of an operating institution for the UBF 33 X 3 Potential host-institutions 35 3.1. Eswatini National Provident Fund 35 3.1.1. Current challenges 36 3.2. Public Service Pension Fund 37 3.2.1. Current challenges 38 3.3. Other potential host institutions 38 X 4 4.Assessment of the two potential host institutions 40 4.1. Analytical framework and questions 40 4.1.1. Unemployment Benefit Fund: regulation, mandate and governance 40 4.1.2. Unemployment Benefit Fund’s operational infrastructure 42

X 4 4.Assessment of the two potential host institutions 40 4.1. Analytical framework and questions 40 4.1.1. Unemployment Benefit Fund: regulation, mandate and governance 40 4.1.2. Unemployment Benefit Fund’s operational infrastructure 42 4.1.3. Unemployment Benefit Fund: case handling 43 4.1.4. Unemployment Benefit Fund compliance control 43 4.1.5.The investment of Unemployment Benefit Fund’s reserves 45 4.1.6.Cost-efficiency of the Unemployment Benefit Fund and its operation 45 4.2. UBF legal framework and regulation 46 X 5 A closed and an open hybrid model 47 5.1. Revisiting the starting point 47 5.2. A closed hybrid model 47 5.3. An open hybrid model 49 5.4. A wider perspective 50 X 6 Recommendations and conclusion 52 6.1. Recommendations 52 6.1.1. Build an independent UBF 52 6.1.2. Adopt an open hybrid model for the UBF 52 6.1.3. Forward the UBF reform process 53 6.1.4. Keep initial ambitions low 53 6.1.5. Strengthen reform efforts to match requirements 54 6.2. Conclusion 54 6.3. A longer-term focus 54 6.4. A roadmap 5504 ILO Working Paper 148 Annexes 56 ISSA good governance guidelines 56

B. ILO on Social Security Governance 56

Sources 58 Online interviews with stakeholders and other informants 58 Validation visit to Eswatini 26-27 February 2024 59 References and other background material 60 Acknowledgements 6105 ILO Working Paper 148 List of Tables Table 1: Assumed UBF contribution rates 17 Table 2: Social security contributions in Tanzania 24 Table 3: Summary of UBF tasks 31

References and other background material 60 Acknowledgements 6105 ILO Working Paper 148 List of Tables Table 1: Assumed UBF contribution rates 17 Table 2: Social security contributions in Tanzania 24 Table 3: Summary of UBF tasks 31 Table 4: ENPF staff decomposed 36 Table 5: PSPF staff decomposed 37 Table 6 : Six dimensions for the assessment of potential UBF host institution 40 Table 7: A crude indicative timetable for the implementation of the UBF 5506 ILO Working Paper 148 List of Boxes Box 1: Linking Unemployment Insurance and Active Labour Market Policies 21 Box 2: ISSA Good Governance guideline no. 11 – Financial Sustainability of the programme 30 Box 3: An example of a hybrid model – Danish ATP 4907 ILO Working Paper 148 Acronyms ALMP Active Labour Market Policies DB Defined Benefit DC Defined Contribution ENPF Eswatini National Provident Fund FRSA Financial Services Regulatory Authority ISSA International Social Security Association LAB Labour Advisory Board MoU Memorandum of Understanding NSSP National Social Security Policy NSSA National Social Security Authority (not established) PEU Public Enterprise Unit (under the Ministry of Finance) PSPF Public Sector Pension Fund SOE State Owned Enterprise UBF Unemployment Benefit Fund UI Unemployment Insurance08 ILO Working Paper 148 Executive Summary The Eswatini government – in consultation with social partners - have designed an unemployment insurance scheme to provide temporary financial support for workers who lose their jobs, facilitate their re-integration into the labour market, and support labour market development. The unemployment insurance scheme will be managed by the Unemployment Benefit Insurance Fund (UBF). In the absence of national social security institution mandated to manage mandatory short-term insurance scheme, the Government had two basic options regarding UBF: 1.) create independent entity in its own right; or 2) identify an existing State-Owned Enterprise (SOE) that could perform the mandate, management and operational tasks of the UBF. As the decision was

short-term insurance scheme, the Government had two basic options regarding UBF: 1.) create independent entity in its own right; or 2) identify an existing State-Owned Enterprise (SOE) that could perform the mandate, management and operational tasks of the UBF. As the decision was taken that the UBF is to be operated by an existing State-Owned Enterprise (SOE), two existing entities were identified as possible hosting institutions: Public Service Pension Fund (PSPF) and Eswatini National Provident Fund (ENPF). In order the make an informed, evidence-based decision, the Government requested an independent assessment as to which of two existing SOE’s is better placed to host UBF. Five recommendations and conclusion Summing up on its observations, the assessment reconsiders its starting point: “The UBF should be operated by an existing institution”. While the assessment has identified areas where the UBF may benefit from using existing infrastructure and capacity held by the ENPF, it does not see full operation through an existing institution as the most optimal framework for the UBF. There are two key reasons for this: ● The operation of the UBF will require development of significant new capacities and resources that are crucial to the UBF but will be without any relevance for the existing mandates. ● There is a significant risk of inadequate governance attention in a multi-purpose set-up when mandates are fundamentally different as is the case here. Therefore, the assessment arrives at five main recommendations: i) Create the UBF as an independent self-sustained institution overseen by a dedicated UBF board with a distinct governance structure. Evidence derived from this assessment points out that given the nature of the UBF and its operational and oversight requirements, a hybrid model may be considered. A hybrid model implies creating an independent institution – a SOE – headed by a three-partite board with a composition matching its business and responsibilities. While this board will be ultimately responsible for the implementation and operation of the UBF, it should be allowed to undertake its operation – in full or in part as it sees fit to retain robust operation while remaining cost-effective – intion matching its business and responsibilities. While this board will be ultimately responsible for the implementation and operation of the UBF, it should be allowed to undertake its operation – in full or in part as it sees fit to retain robust operation while remaining cost-effective – inhouse or based on contractual agreements with one or more other public agencies as relevant. ii) Adopt a hybrid model where the UBF is a stand-alone self-sustained SOE allowed to outsource aspects of its operation or parts thereof to other public agencies on a contractual basis. Creation of a stand-alone UBF and the adoption of a hybrid model may offer new perspectives for social security in Eswatini more broadly. Hence, it offers a strong platform for social insurance09 ILO Working Paper 148 focused on short-term risk going forward. Also, it may facilitate gradual rationalisation by building transversal operational functions potentially used by all relevant social insurance institutions. iii) Set up expert work streams critical to the process, which need to be undertaken simultaneously over the coming 6-9 months. Considering the process related aspects of the UBF reform, several aspects are missing or need to mature. This relates among other things to the UBF law and the scope and business plan of the UBF. Covering these aspects is critical to sustaining a convincing policy narrative and to allowing cabinet and parliament to take informed decisions. To cover these aspects the following work streams are identified (not ruling out that more work streams may be needed): ● UBF shortand mid-term business plan covering all aspects of UBF-operation. ● Expected UBF effects and tools to address them if needed. ● Financing the UBF implementation and its subsequent operation. ● Model for the ongoing assessment of financial sustainability, reserve fund requirements, and policy options in the event of insufficient funding. ● Framework for the management of a UBF reserve fund. ● Framework for the linkages between the UBF and ALMP efforts. ● Ongoing policy research and evaluation and recurring rationale reporting. ● UBF governance aligned with agreed international standards. ● Review and amendment of the draft law. iv) Keep the ambition level for the UBF low at initial stages. Instead of risking that ambition out-

● Framework for the linkages between the UBF and ALMP efforts. ● Ongoing policy research and evaluation and recurring rationale reporting. ● UBF governance aligned with agreed international standards. ● Review and amendment of the draft law. iv) Keep the ambition level for the UBF low at initial stages. Instead of risking that ambition outpaces capacity, the approach should be to start cautious and only raise the ambition level as capacity and insight allow. v) Allocate more internal resources and broader competences to the project, ensure broader ministerial participation and commitment and ensure that labour market policy programmes – at least in an initial form – are developed back-to-back with the UBF. Should it be decided to allocate the management of UBF to an existing institution, there is sufficient evidence to conclude that the ENPF is the relevant existing host institution. In this case and in order to ensure adequate UBF implementation and operation through the ENPF, two key preconditions should be met: ● The ENPF will have to adapt as an institution to be able to deliver on UBF-responsibilities and it will have to adapt its governance to fit and operate the UBF mandate. ● This adaptation must ensure financial integrity and transparency, and adequate management attention for the UBF. The scope of the assessment The background and basis for the conclusions are summarised in detail below.10 ILO Working Paper 148 Modalities for a UBF The assessment is based on key preconditions associated with social insurance in case of unemployment stemming from previous analytical and actuarial analysis conducted by ILO, presented to and discussed with the Government and social partners: ● The UBF must cover the entire formal labour market – including all branches of the private sector and the public sector. Any other approach will undermine the ability to share risk and jeopardize the ability to facilitate unemployment insurance. ● The UBF must be self-sustained with regards to its operation and benefits. This means that it is to be financed entirely from its incoming contributions and occasional drawdown from the buffer reserve, that it is expected to build. This condition must be reflected in its contrijeopardize the ability to facilitate unemployment insurance. ● The UBF must be self-sustained with regards to its operation and benefits. This means that it is to be financed entirely from its incoming contributions and occasional drawdown from the buffer reserve, that it is expected to build. This condition must be reflected in its contribution rates, coverages and/or benefits. This does not exclude the possibility that the State covers or supports the costs related to the creation of the UBF. ● The ability to remain self-sustained must be evaluated on an ongoing basis guided by benchmarks – i.e. through periodic actuarial evaluations applying a range of risk scenarios and risk margins as regards future developments. ● Design, financing and delivery of unemployment insurance, as a form of short-term social insurance differ substantially from those of a pension fund/provident fund focused on longterm social insurance. ENPF and PSPF both have experience with long term social insurance schemes only. This substantive difference as regards the nature of the schemes forms the basis of evidence in support of UBF as a standalone entity. ● The introduction of the UBF will have behavioural effects – among employers as well as employees. Some will be desirable, others less so. Therefore, continuous policy oversight, and the flexibility to respond and adapt if relevant is of essence. ● The draft UBF-Act that has been developed in parallel with scheme design and deliberations about the institutional set up will need to be detailed on a range of aspects –such as the management and delivery of the scheme, and the financing sources for the creation of the UBF and for its subsequent operation. ● A framework for the linkages between the UBF and Active Labour Market Policies must be set out. ● A detailed business case for the UBF and its operation must be developed. ● International standards and guidelines setting out good governance principles as a fundamental condition for a successful development and operation of the UBF will have to be implemented. ● The Coverage and Function of the Unemployment Benefit Fund (UBF) must be developed and supported by clear financial assessments.. Operating the UBF

● International standards and guidelines setting out good governance principles as a fundamental condition for a successful development and operation of the UBF will have to be implemented. ● The Coverage and Function of the Unemployment Benefit Fund (UBF) must be developed and supported by clear financial assessments.. Operating the UBF Looking closer at the UBF as such, the assessment identifies a set of requirements to be met by an institution bestowed with the responsibility to operate it. Adequate competences and capacity of board members and adequate governance attention to the UBF mandate must be ensured. Hence, alignment with international standards on good governance is a key condition for the UBF to be transparent and fully accountable. Its funding must be kept separate from the funding of other schemes/activities, its business, and its different products must be adequately accounted for, and any cost sharing across different schemes must be transparent and fair.11 ILO Working Paper 148 The UBF-implementation must be rules based, supported , documented by a complete audit trail, and – leaning on the National Social Security Policy and acknowledged international standards - it must be financially sustainable The assessment identifies a range of critical operational requirements for the UBF as a social insurance arrangement focused on short-term risks. First and foremost, it establishes the crucial role of registration, contribution collection and compliance, and it details the requirements on these aspects in the context of social insurance focused on unemployment as a short-term risk. It also establishes how case-handling needs and the needs for local presence and coordination with local units executing labour market policy measures separates it from social insurance focused on long-term risk – e.g. old-age and retirement – and calls on capacities and resources that does not exist with any existing social security institution in Eswatini. Finally, the assessment identifies potential benefits of undertaking UBF operation under or through an existing institution including synergy, efficiency, consolidation, enhanced quality, and lower costs – thereby also identifying key benchmarks for assessing the relevance (ex-ante) and success (ex-post) of such an arrangement. Two institutions as potential UBF host institution

Finally, the assessment identifies potential benefits of undertaking UBF operation under or through an existing institution including synergy, efficiency, consolidation, enhanced quality, and lower costs – thereby also identifying key benchmarks for assessing the relevance (ex-ante) and success (ex-post) of such an arrangement. Two institutions as potential UBF host institution Two existing SOEs – the Eswatini National Provident Fund (ENPF) and the Public Service Pension Fund (PSPF) – have been identified as possible hosting institutions for the UBF. The ENPF is a national provident fund set up by law and covering all private sector workers engaged in formal employment with arrangements in place to include informal sector workers and self-employed. The scheme operates as a defined contribution (DC) scheme with individual accounts. ● The PSPF is an occupational social insurance pension fund set up by law to provide pensions for public sector employees. The scheme operates as a defined benefit (DB) pension scheme with government underwriting liabilities as a guarantor of last resort. While the two institutions are successful in their current operational functions, the findings of the assessment point out that they are also facing challenges. While these challenges may not be prohibitive for hosting the UBF, they are relevant as part of the consideration. ● The ENPF is deeply engaged in a strategy to transform from a provident fund to a pension fund thereby strengthening its ability to contribute to ensuring income support in old-age. This is an important as well as a complex undertaking. While these efforts have been going on for more than ten years, the ENPF is still to secure the necessary support in cabinet and parliament. ● The PSPF is under pressure on its core business, among other things because the transfer of government activities to SOEs. According to the information provided this means that the staff involved are no longer covered by the PSPF. Therefore, the PSPF is engaged in a strategy to find new business to ensure that it can maintain scale. Key elements under this heading are a wish to be able to offer PSPF coverage to companies outside the public sector (and interest in undertaking other public authority business as for example the UBF.)12 ILO Working Paper 148

find new business to ensure that it can maintain scale. Key elements under this heading are a wish to be able to offer PSPF coverage to companies outside the public sector (and interest in undertaking other public authority business as for example the UBF.)12 ILO Working Paper 148 The two institutions and UBF operation The PSPF and the ENPF have distinct identities. Consequently, they also differ as regards their starting points in relation to the operation of the UBF. Operating the UBF under an existing institution as a separate mandate requires significant changes and adaptation of the operating institution itself – regardless of which institution is chosen. Changes and adaptations relate to core issues such as board composition, mandate, governance, competences, processes, operations, and infrastructure. ● Both the ENPF and the PSPF are headed by tri-partite boards. The ENPF includes broad private sector social partner representation, while the PSPF has public sector partner representation only and with government representation fitted to government’s role as ultimate plan sponsor. ● Both institutions are focused on retirement and other long-term social contingencies and none of them have any experience in any field of addressing short-term social contingencies. ● The ENPF is focused on a broad social security objective for sections of the labour market not covered by the PSPF. The PSPF on the other hand is essentially an occupational arrangement for a particular segment. ● The ENPF has broad coverage, extensive experience in working with private employers and the informal sector, and an established infrastructure to do so. The PSPF on the other hand – being an occupational arrangement covering the public sector alone – does not have such infrastructure and experience. Looking to the institutional set up, both institutions would need to adapt to operate the UBF as a mandate. Challenges would face the PSPF, as it would have to change its identity and build all key capacities from scratch. The finding of the assessment is not that this cannot be done. Rather it sees no rationale for such an approach. Hence, doing so and achieving the required level of performance may take quite a long time, it would incur higher costs, and it would mean duplication of capacities already existing with the ENPF without any added value. In considering

Rather it sees no rationale for such an approach. Hence, doing so and achieving the required level of performance may take quite a long time, it would incur higher costs, and it would mean duplication of capacities already existing with the ENPF without any added value. In considering this aspect, it may be important to bear in mind that the PSPF operates a DB (Defined Benefit) scheme, while the ENPF manages DC (defined contribution) schemes. As part of this, the differences in mind set – the presence/absence of an external plan sponsor underwriting of liabilities - should not be underestimated. Looking to the aspect of building the UBF business processes, existing institutions will face the challenge of interpreting the adopted legislation into a coherent and adequate framework. Both institutions have relevant experience to do so within their existing lines of business. They also have relevant IT experience and exp