The National Insurance Scheme (NIS) will not be hampered in the long run as a result of the major haircut that the state-run social security system took when Government restructured the domestic debt under the Barbados Economic Recovery and Transformation (BERT) programme.
This revelation was made by NIS Manager of Investments Luther Jones who explained that while the fund holds a significant amount of the now lowered Government paper, the exposure is not as great as some pundits have suggested.
Responding to a question during a forum hosted by the NIS at the Lloyd Erskine Sandiford Centre on Wednesday night, Jones explained that while the programme would result in losses initially, the backend of the arrangement will put things back on an even keel.
“The reduction in the bonds will result in a reduction in the principal and interest. However, the interest rate in the latter half has increased by 100 per cent and it is anticipated that the amount of money to be received at the end of the 25-year period will compensate,” he said, as several members of the audience asked for more specifics.
Government owed the NIS $460 million in arrears up to July last year. As at September last year the NIS held just over $3.2 billion in government paper, which means that the fund will bear the brunt of the debt restructuring. Under the domestic debt restructuring bondholders will get reduced interest, longer maturities and in some cases, a reduction in principal.
The NIS will see write-offs of Government debt of about 17.5 per cent per annum for the next four years, while the Central Bank’s Government debt will be written off to the amount of around $1.6 billion or 16 per cent of GDP. This is expected to give Government some short-term fiscal space, but pundits say both institutions would eventually need to be recapitalized.
Back in January, former Prime Minister Professor Owen Arthur, criticised Government’s decision to restructure some aspects of its debt.
Questioning Government’s decision to restructure the debt held by the NIS Arthur a former minister of finance, said this move was nothing but “reckless endangerment”. Pointing out that the NIS’ funds did not belong to Government or the National Insurance Board, Arthur said the money belonged to the people of Barbados and was only being managed by the fund “on the basis of a trustee relationship”. He therefore expressed concern that the fund could take a major haircut of close to $1 billion as a result of the debt restructuring.
However, Jones assured Barbadians that NIS is in a financially healthy position with a number of investments that would more than make up for any shortfall.
“The National Insurance does have a sizeable amount of Government bonds but at this point the fund is very viable and I don’t think we have a problem going forward… At this point we have about $4 billion in investments and we believe that would help with the situation,” he said.