The International Monetary Fund (IMF) has long proffered the idea that Barbados’ public servants’ pension benefits were way too generous.
In fact, many of us can remember back in the early 1990s when we were also in the IMF’s hands. The Washington-based multilateral institution had a reputation as a hard task master, insisting that borrowers who could not meet their targets were led to devalue their currency, slash the number of public officers employed, and rip away many of the benefits enjoyed by those who remained.
We saw the damage that being under the IMF’s thumb can cause. Then Prime Minister Sir Lloyd Sandiford sent home hundreds of civil servants, cut salaries by eight per cent, enforced an island-wide public-private sector wage freeze and gutted severance payment benefits when new legislation was introduced.
Yes. It was a terrible time for Barbadians. Thousands took to the streets in mass demonstrations. Sir Lloyd remained firm, articulating that the alternative of devaluation of the Barbados dollar was a far worse nightmare that would continue long after the IMF programme ended.
There are some few things that remained relatively untouched despite the IMF’s haranguing in almost every Article IV Consultation and economic review.
The IMF was never satisfied with the matter of pensions in Barbados and the sustainability not only of public officers’ retirement entitlements, but those that are funded by the National Insurance Scheme (NIS), to which most employed Barbadians contribute.
In February 2021, as we struggled through a fresh COVID-19 wave, the IMF was again fretting about pensions for public offers.
The reality is that some level of reform is required. With such a large public sector and successive years of no and low economic growth, it translated to pressure on state funds to sustain a pension programme in which beneficiaries made no contributions to the funding.
Bert van Selm, the IMF economist who has been the point man on Barbados for the past five years, said an actuarial review of our civil service pension system was completed in November 2020 and would be the basis of “upcoming public pension reform”.
Van Selm had a year earlier, declared that public sector pension arrangements were a “risk” to the IMF programme with Barbados.
“Additional challenges include reforming the civil service pension system and strengthening the effectiveness of customs. The tasks are arduous, but there is no alternative route to restoring fiscal and external sustainability to spur a sustained economic recovery,” the IMF said then.
In the last consultation the IMF team was highly complimentary of Barbados’ efforts to reach many of the programme’s targets.
“Barbados continues its strong implementation of the comprehensive Economic Recovery and Transformation (BERT) plan aimed at restoring fiscal sustainability, increasing reserves, and unlocking growth potential through structural reforms.
“The prolonged global coronavirus pandemic, along with the twin natural disaster shocks of volcanic ashfalls from neighbouring St Vincent in April and Category 1 hurricane Elsa in July, pose a major challenge for the tourism-dependent economy,” the IMF told us.
To assist us with the many pandemic challenges, the IMF temporarily relaxed the primary balance target for the financial year 2021/2022 but it lobbied for reform of state-owned enterprises (SOEs) to “create fiscal space for investment”. The institution told us “transfers to SOEs need to decline and endorsed “plans to reform the pension system”.
So, after years of prodding, pension reform has been triggered and it is not going down well with our public sector labour representatives.
Caswell Franklyn, the leader of the Unity Workers’ Union (UWU), has been a thorn in the side of government and other trade unions, whom he contends are rubbing shoulders with Government.
The UWU leader has labelled as “unconscionable”, the plan announced in the Budget requiring public officers to work for 40 years, instead of 33 and a third, in order to receive full pension benefits.
The question remains, can Barbados sustain the current system of public sector pensions.
Government’s expenditure for pensions was $298 million in financial year 2019/2020. It increased to $335 million for financial year 2020/2021 and was projected to increase to $369 million in the current financial year.
As much as the issue may cause angst among those impacted, there are no easy short-term solutions. Most of us wish we could retire at 50, but what we do not want is a situation where there is an increase in the compulsory retirement age which now stands at 67. A check in the obituaries will show that too many Barbadians are not living long enough to enjoy the fruits of their years of labour.
