Saving the national insurance fund

Dear Editor,

Looking at the long-term social and economic sustainability of The Bahamas, The Organization for Responsible Governance (ORG) would like to reflect on the implications of the recent remarks made by government on the current and future status of the National Insurance Board (NIB).

Recently, multiple statements were offered from the government which reflected a significant and ongoing dilemma between the long-term needs of The Bahamas and the immediate socio-economic circumstances of our people.

It was noted that NIB contributions would be unable to sustain the required payouts and will be depleted by 2028, unless urgent action was taken.

A possible strategy was offered of an initial 1.5 to two percent increase in contributions by 2023 with more increases over a period.

However, later, the government in response to media inquiries, represented that to avoid immediate negative impact to the Bahamian people during this difficulty economic time, no increase would be considered at this point.

The crucial role the NIB plays in The Bahamas, as the primary source of financial benefits to various segments of the population, is undeniable.

This is particularly so for vulnerable communities such as those who have retired or who have become disabled.

The mandate and objectives of the NIB to support Bahamians makes its failure and the resulting socio-economic impacts almost unthinkable. Simply put, The Bahamas needs a working NIB to achieve a positive and sustainable future.

As noted by the International Labour Organization (ILO) in a 2018 report on Financing Social Protection plans, it is critical that governments maintain the integrity of social protection schemes to support citizens through the increasing local, regional and global crises.

As an example, during the dual crisis of Hurricane Dorian and the COVID-19 pandemic, The Bahamas funded nearly $100 million in unemployment benefits via NIB, with an additional $92 million paid out through the government funded unemployment assistance program.

However, the dilemma presented in the government’s exchange about how to deal with the current NIB problems reflects a bigger systemic issue.

With acknowledgment of the unprecedented and significant economic hardship of The Bahamas’ current state, succeeding administrations have taken a similar stance to delay addressing the fundamental problem of NIB, which is extremely time sensitive.

NIB, as per the National Insurance Act 2006, was created to provide income-replacement in respect of sickness, invalidity, maternity, retirement, death, industrial injury/disease, and involuntary loss of income.

NIB, however, has a longstanding discordance, which has been noted repeatedly, exist between available funds, current contributions and the long-term viability of the scheme.. 

In a 2005 report by the government formed Social Security Reform Commission, issues with NIB’s financial sustainability were recognized and predicted to be depleted by 2029 unless government take steps to improve the planning and management of the fund for future generations of contributors.

Additionally, NIB, in a 2009 public response countering a proposal offered by The Nassau Institute encouraging increased contributions to support long-term sustainability of the scheme, acknowledged the need for reform and pledged to be proactive to ensure that the fund remain relevant, vibrant and pay a meaningful benefit beyond 2032.

In 2018, The Bahamas National Development Plan draft presented outcome 7.8.4 as Strengthen the Sustainability of NIB’s Social Security Scheme.

Additionally, the need for an increase in contribution to sustain the status of the National Insurance Board’s funds was alluded to by government in 2015 and again in 2021.

Now, almost two decades later from the 2005 expression of concern, despite various amendment and adjustments to the scheme, the fund is projected to deplete much sooner than predicted.

The 2005 report also made note of the risks inherent to management of NIB’s principle and the need to align an investment strategy to counter the anticipated declining local and global interest rates.

The decline of these rates have occurred as predicted and although there have been a number of unanticipated events that have negatively affected the Bahamas economy, such as hurricanes and the global financial crisis, the current state of NIB does not reflect effective and sustainable planning or management.

Furthermore, the fund has been regularly used over numerous administrations as a secondary pool of funding by governments with minimal consistent rationales for such actions.

Unrealized housing developments, no return government projects and even a bailout of The Bank of The Bahamas have occurred to the detriment of the long-term fiscal health of NIB.

Fundamentally, NIB was not designed to serve as an alternative source of revenue or offer government a resource to bail out bad investments.

In response to this practice, there have been ongoing urgent and unanswered calls from civil society and the private sector for greater transparency on the usage of the NIB funds and investments.

There is a strong case for the need for an immediate clear and open long-term plan toward long-term effective fiscal management and restoration of the viability of the fund.

The ILO 2018 report states that good governance and administration of social protection programs is critical to build public trust in the system and offered better tripartism oversight.

It is notable that the board’s last public report on record is from the year 2017, despite the requirement from Section 47 in The National Insurance Act to produce an annual public report.

Going forward, a more transparent account of NIB’s endeavors over the past three years must be brought forward to satisfy the concern of the public and allow for more open cross-sector planning.

To regain the public trust in the scheme, it will be important that there is a full picture of the financial status and health of the fund and how viability will be established before increases in contributions are initiated.

ORG recognizes that the National Insurance Board, like many other government and quasi government-run institutions, faces significant operational challenges that require immediate remedies.

Many of these are resulting from decades of short-term “painless” and politically safe approaches.

Our current circumstances, amidst rising inflation and a global economic fuel crisis, do not present an ideal time to address the long-standing issues of NIB. But years of avoiding the pain of significant long-term reform, have left The Bahamas with few other options.

As evidenced by the imminent risk of NIB’s ultimate depletion, there is no more time to avoid the pain. To achieve sustainability, NIB must be fixed to address the needs of Bahamians in the future.

ORG encourages the government to urgently work to develop a clear, open and transparent plan toward addressing issues within the NIB and create a path to long standing viability.

The best chance to develop sound, effective and sustainable plans that meet the needs of citizens today and in the future lies in collaboration between government, the private sector and civil society.

Bahamian citizens, who contribute to the scheme, deserve to have the confidence and trust in the viability of NIB to meet their long-term needs.

Failure to do so risks a significant negative impact on the growth of the private sector and the social protection of vulnerable segments of our country.

Organization for Responsible Governance

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