‘Unsustainable’

The Mia Mottley administration has been advised to find another source of funding to pay public servants’ pensions as its continued use of government revenue to do so is now “unsustainable”.

The committee comprising members of the private sector, trade union movement and creditors, which has for the last four years monitored the progress of the Barbados Economic Recovery and Transformation (BERT) programme, on Tuesday identified a pressing need for reform of the public pension arrangements “to move towards a funded approach for new participants” to curtail growing demand on current revenue to meet retirement benefit obligations.

“The reform of the public service pension arrangements is an important issue that needs to be addressed in order to have a sustainable programme focused on the provision of retirement benefits to public servants.

“The current approach of funding retirement benefits out of current expenditure is unsustainable and places a significant and growing demand on current revenue to continue to meet these obligations,” Co-Chair of the BERT Monitoring Committee (BMC) Trisha Tannis stated in the committee’s latest report for the period ended March 31, 2022.

She further pointed to Government’s failure to table a revised public pension law to enhance the sustainability of the public sector pension scheme as discussed in the Memorandum of Economic and Financial Policies agreed with the International Monetary Fund (IMF) which supported the BERT programme under an Extended Fund Facility (EFF).

That failure contributed to the Government not achieving two of its structural benchmarks due by March 31, under the EFF.

The other was the National Insurance Scheme (NIS) submitting all outstanding financial statements for audit by the Auditor General.

The pension issue was one of the critical areas of focus that the committee said the administration needed to continue to pursue to achieve the long-term goal of debt sustainability.

The other area was a reduction in the dependence of state-owned enterprises (SOEs) on government support, “as transfers to these entities continue to be significant due to the structurally weak profitability and high operating costs”.

The seven-member BMC called for “improvement in the governance and operational controls of government ministries and SOEs including the financial reporting systems, so that reliable and timely information is available for decision making and demonstrating to stakeholders the integrity of operations”.

“This includes reporting performance through audit reports delivered on a regular and timely basis and follow-up action where discrepancies are noted,” the committee added in its report which coincided with the 14th final set of targets under the EFF.

On the bright side, the BMC pointed out that despite the impact of the COVID-19 pandemic combined with the volcanic ashfall and Hurricane Elsa, the Government continued to achieve all of its performance targets and, in particular, the revised primary balance of -1 per cent of GDP and the growth in Net International Reserves to levels well above the programme target.

It cautioned, however: “The continued severity of the impact of COVID-19, the continuing challenges with supply chain logistics globally and further increasing oil prices coupled with limited GDP growth opportunities remain the principal risks to the programme.”

The BMC noted that the administration has been successful in meeting its obligations during the term of the EFF with modifications along the way to take account of the unexpected circumstances encountered.

Detailing the specific accomplishments, Tannis said that when it came to the fiscal target, the Government had aimed for the public debt not to exceed $13.7 billion. It reached $13.3 billion at the end of the review period.

Another fiscal goal achieved was the Central Government’s ceiling on transfers and grants to public institutions. The target was not to spend more than $492 million and that amount was exactly what was disbursed.

As far as the monetary goals were concerned, the intention was to have a minimum of $1.4 billion in net international reserves at the end of the period. Tannis reported that some $2.5 billion was, in fact, available during that time.

The Central Government’s domestic arrears, which include overdue trade payable for goods and services, overdue contributions, rents and loan payments to the NIS and overdue tax refunds, was also examined by the BMC.

It said the Government had managed to continue to reduce those arrears ahead of the schedule it had established under the BERT programme.

“It should be noted these are confirmed debts only, as any amounts still being processed by the various agencies are not included,” Tannis explained.

Reporting on the floor target on social spending – the minimum limit on social spending on programmes intended to have a positive impact on education, health, social protection, housing, community services and recreational activities – she said that overall spending at $64 million was “ahead of the minimum limit”.

Tannis, who is also Chairman of the Barbados Private Sector Association, also drew attention to the performance of the ceiling on public institutions’ arrears.

“Public institution arrears include purchases of goods and services not settled within applicable contractual grace periods or within 60 days after the due date, together with contributions to the NIS overdue more than 60 days and tax obligations not settled within legislated timeframes.The current level of arrears at $16 million is within the maximum limit,” reported the committee co-chair.

The BERT programme, which the Mottley administration started soon after first assuming office in 2018, is scheduled to end on September 30, 2022.

Prime Minister Mottley announced in May – after the IMF completed its seventh and final review of the BERT programme and indicated that Barbados had met all its quantitative targets for end-December 2021 and end-March 2022 – that a decision would be made within a few months on whether to extend the programme.

dawneparris@barbadostoday.bb

emmanueljoseph@barbadostoday.bb