‘Ridiculous’ remedy

Persaud says repaying NIS $1.3 billion would put Barbados dollar at risk

By Emmanuel Joseph

One of the architects of the Government’s 2018-2019 debt restructuring programme has dismissed calls for the administration to repay the $1.3 billion debt to the National Insurance Scheme (NIS) that was written off.

In fact, Professor Avinash Persad, Special Envoy to Prime Minister Mia Mottley on Investment and Financial Services, warned that to do so would be tantamount to reversing the debt restructuring programme and putting the Barbados dollar back into jeopardy.

There have been calls in recent days from the Democratic Labour Party (DLP) leadership, former Opposition Senator Caswell Franklyn, and Canada-based Barbadian economic consultant Carlos Forte for the Government to repay the debt to the NIS.

“That’s like saying reverse the debt restructuring. It means put the dollar back into jeopardy and put debt back at 178 per cent [of Gross Domestic Product]. That just doesn’t add up. I think it’s just trying to score political points without making any economic sense,” Professor Persad said in an interview with Barbados TODAY on Wednesday.

He added that such a move would also threaten the living standards of Barbadians and place the social security assets in a much worse position

“It is just ridiculous posturing…it is political posturing. Of course, we all would love not to have had a debt restructuring, and every single person who experienced a loss from the debt restructuring would have a cause that they should have been saved, but it only meant that others would have suffered more.

“Unfortunately, it had to be as broad as possible. If it were not broad, it would have to be concentrated on all the others…all the private pensioners. We would not have done enough to save the dollar. If it was easy to save the dollar, it would have been done before,” the investment and financial services consultant contended.

When the Barbados Labour Party (BLP) took over the reins of government from the DLP in 2018, the Mottley-led administration restructured the public debt for the first time in the country’s history.

The debt restructuring, announced on June 1, 2018, included external debts to commercial creditors and treasury bills.

Professor Persad concluded that the reason the previous administration delayed responding to the debt situation was that there were no easy answers.

“If we had chosen not to restructure the debt, but to devalue the dollar, the NIS would have been in a much worse position. The NIS would have had a much greater increase in the amount it had to pay out in benefits. Their assets would have been invested in bonds. Bonds pay a fixed return and with much higher inflation, the value of the bonds would have gone down. So they would have been paying out more, but the value of their assets would have gone down, perhaps as much if not even more, than we got for the restructuring,” he said.

“The public needs to understand that the alternative to the debt restructuring was a devaluation which would have pushed up inflation, pushed up the benefits to be paid out and pushed down the value of the assets…so the NIS would have been in a much worse position.”

On Tuesday, commenting on the planned increase in the age to be eligible for a pension from 67 to 68 in 2034, economist Forte acknowledged that no matter what option the Government chose to reform the NIS and prevent the NIS Fund from depleting, there would be “some pain”.

He was adamant, however, that to ease the pressure, the Mia Mottley-led administration should pay back the money owed to the Scheme, and while it would be a difficult task, it could be done over a 30 to 40-year period.

“My preference would have been that the Government would have committed to repaying the $1.3 billion that it wrote off during the debt restructuring, which has exacerbated the problem,” Forte said.

“By reducing the NIS asset base by $1.3 billion, what the Government has told us is a crisis could come home to roost within the next 10 years. It could have been the next 15 or the next 20. So that particular action of the Government was certainly not without consequences, and the Government was warned of that by former Prime Minister Owen Arthur and other economists like myself who would have been concerned about a debt restructuring that resulted in the NIS losing such a significant portion of funds.”

emmanueljoseph@barbadostoday.bb