The National Insurance Scheme has been forced to use its investment income to pay benefits owing to Government’s half-billion-dollar debt as employer and tenant, the long-time NIS director who is now the Government’s chief economic advisor has revealed.
The social security system is also holding in excess of $3.5 billion in Government paper as at September 11, said Director of Finance and Economic Affairs Ian Carrington.
For that reason, said Carrington, it was necessary for the NIS to join in the current Government’s debt restructuring exercise.
Government as employer had built up arrears to the NIS especially over the past five years, which was simply “beyond the capability of the Government of Barbados to service and to pay”.
This had resulted from Government not making its central Government and statutory corporation contributions, nor meeting other financial obligations including rent payments.
“That then forced NIS into a situation of utilizing, much sooner than NIS had anticipated, their investment income to sustain the payment of benefits. And on a monthly basis that average essentially [is] $70 million out of your investment income,” Carrington told a Central Bank of Barbados breakfast seminar on Wednesday, which was designed to explain Government’s debt exchange offer.
“This debt restructuring essentially puts a marker in the sand, and what we are seeking to do is pay off the arrears – which to date is $461 million – half of it in cash over a four-year period and the other half in bonds,” he said.
Suggesting that it was necessary for the debt restructuring to take place, the former NIS director said while it would be painful it would help to “put Government back into a position where it can pay Central Government’s contribution and the contribution of statutory corporations on time and in cash. What that does for NIS is put NIS back into balance in terms of its cash flow”.
Carrington gave the assurance that Government arrears to the NIS had not reached the point where it was impairing its ability to pay benefits.
“The reserves are significant to meet the commitment going forward over the next 30 years or so. What NIS faced was an issue of having enough cash flow readily available to pay those benefits when they fall due,” he explained.
Although the role of the NIS was to provide a social safety net, over the last three years especially it was being asked to perform roles that it should not have including that of being “a fiscal safety net and a monetary safety net”, Carrington said.
“This [debt restructuring] is essentially getting your house back in order in terms of your fiscal house, putting your monetary house back in order and allowing NIS to do what it was designed to do, which is to look after the needs of the persons in Barbados when they are at their most vulnerable, which is when they are unemployed, sick or when they retire. So this plan that we have devised has been devised taking those things into consideration,” he said.