National Review

Whistling past the graveyard

Danger in not prioritizing NIB crisis

Nearly three months after Prime Minister Philip Davis acknowledged that the National Insurance Board (NIB) is at a “watershed moment”, and declared that despite the recommendations in the latest actuarial review of NIB there will be no rate increase at this time to save the fund from depletion, he has yet to read the report.

This was a worrying admission made by Davis on Monday after his arrival back in country from attending the Commonwealth Heads of Government Meeting (CHOGM) in Rwanda.

With urgent matters on the home front, the prime minister might need to do a better job at balancing the international profile he is seeking to build against important domestic issues, like gas prices, inflation in general and saving NIB, an important social safety net for thousands of Bahamians.

While political leaders love to deliver good news to their people, and ought to work to protect the economic and social interests of the population, they must be careful not to bury their heads in the proverbial sand and shy away from the heavy lifting that could also be unpopular.

We saw in the prime minister’s budget communication in May, and throughout the recent budget debate in the House of Assembly, a downplaying of the debt crisis we continue to face and the significant implications that come along with burgeoning government debt, projected to hit $11.6 billion in the approaching budget year.

When asked about the increased allocation for consultancy services from $49.6 million to $65.1 million, the prime minister said, “The fact that the funds have been allocated do not necessarily mean they will be used.”

When asked last month about increases in the travel budget by $4.1 million, Davis said the allocation “does not mean that it will be used”.

We do not get a sense from the government that these are austere times, even as we have been asked by the deputy prime minister to conserve in the face of rising gas prices.

Frequent travel by the nation’s leader to international meetings like CHOGM, the UN Climate Change Conference and the Summit of the Americas are expected. We do not live on a self-sustaining island. We are a part of the global community.

In order to represent our interests and in order to attract much needed investments to help grow our economy, travel is necessary.

What many are beginning to question, however, is whether the size of the delegations accompanying the prime minister is always necessary.

From what we have seen, we do not think they are.

One might ask, what do delegation sizes and increased travel budgets have to do with NIB and other domestic issues?

For Davis, the concern ought to be the optics, that a perception does not set in that they are indeed squandering public funds while Bahamians are burdened by the high cost of living.

Equally so, the prime minister ought to ensure he appears to have a grasp on these important domestic issues.

That he has not found the time to read the report on the declining health of NIB is telling.

State of crisis

The matter of the latest actuarial review of NIB and its recommended rate increase to save the fund from depletion in six years was first raised by Minister of State in the Office of the Prime Minister Myles LaRoda, speaking to reporters on his way to Cabinet back in April.

Regarding a rate increase for NIB, LaRoda said it will likely be “anywhere from 1.5 to two percent annually, bi-annually for a period of time. So, there is not just going to be one. We could expect numerous increases. That has not been decided by Cabinet as yet, but it would be fair to say that it is coming.”

But the Prime Minister Davis said there will not be any rate increase “at this time”.

“Yes, we are at that watershed moment, but I am not going to at this time put any further burden on the Bahamian people,” he said in April.

“We will see how we could be innovative and creative to ensure that we do not do or embrace such an initiative until we have brought the relief that is necessary to allow that to happen.”

Speaking in the House of Assembly during the budget debate this month, LaRoda said the “increase in the contribution rate cannot be circumvented”.

“One essential reform iterated and referenced in the previous actuarial review is an increase in the contribution rate,” LaRoda said.

“… The prime minister had made a position and the position of the government is that we will not visit that at this time until we have put our workers, in particular those at the lower level, and those businesses as they recover, in a position to do such an absorption.

“But Mr. Deputy, these are the facts and facts are a stubborn thing.”

LaRoda did not table the actuarial review, though the budget debate would have been a good opportunity to do so.

The review, dated January 2022, was completed by the International Labour Organization.

That the prime minister has not bothered to read it in the six months since its completion suggests he does not grasp the urgency of the crisis facing NIB.

Interestingly, the prime minister’s tone regarding a possible rate increase was changed when he spoke on Monday, compared to his firm position in April that there will be no increase.

In the most recent comment, Davis said no decision on a rate increase has yet been made.

“The recommendation has been made. It doesn’t come off the table until we decide whether or not to accept that recommendation. We have not yet done that, as I indicated,” he said.

A leaked copy of the NIB actuarial review was obtained by The Nassau Guardian and we reported on it extensively this week.

There is no reason why the government should not have already made it public.

The report concluded that NIB would have to increase its contribution rate by two percent (we presume two percentage points) next month and continue increases every two years until 2036 to ensure its financial sustainability.

There has only been one rate increase — from 8.8 percent to 9.8 percent in 2010 — since NIB started in 1974.

“There are substantial annual deficits from 2019 to 2028,” the report noted.

“Indeed, these deficits exist since 2016, well before the severe contraction of the GDP caused by the pandemic in 2020. The pandemic has exacerbated a financial problem that existed before.”

Davis said on Monday the report is “nothing new”, but that is not true.

While previous actuarial reviews have pointed to the urgency in saving the fund from depletion, the latest review highlights that the rate of depletion has been sped up.

“The reserve for the pensions branch will be exhausted in 2028, one year earlier than in the previous actuarial review. Immediate actions are needed to restore, not only the long-term financial sustainability of the scheme, but most importantly, the short term,” the report warned.

The prime minister is right in acknowledging that previous actuarial reviews of NIB made recommendations to save NIB.

In October 2002 when he was chairman of the National Insurance Board, Davis wrote the then minister responsible for NIB, D. Shane Gibson, informing that the 7th Actuarial Review had been completed.

Davis wrote, “The board accepts this report in principle and supports the 13 recommendations contained. … Most importantly, we support the recommendation that immediate steps be taken to ensure that the program is financially sustainable over the long term. This includes increases to the contribution rate.”

He also wrote, “The board also supports the recommendation to increase the level of insurable wage ceiling and benefit amounts on an annual basis. This will result in insurance coverage and benefits in payment automatically keeping pace with inflation.”

Amendments made to the National Insurance Act in 2010 introduced automatic biennial adjustments to pensions, grants and the wage ceiling.

But, again, there has been no increase in the contribution rate in over a decade.

Meanwhile, NIB has been allowed to run amok by successive governments that have used it as a piggy bank and last funding resort for things the fund was not intended for.    

Presumably, the “innovative measures” promised by the prime minister to save NIB will include further increases to the insurable wage ceiling, reduced administrative expenses and getting a better handle on investments.

Whatever the plan to shore up the fund, we hope Davis makes it a priority while there is still time to do so.

Six years, as we know, is not that far off.

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Candia Dames

Candia Dames is the executive editor of The Nassau Guardian.

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