By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The National Insurance Board’s (NIB) unfunded liabilities “could trigger a fiscal crisis” beyond the-near $7 billion national debt within the next 12 years unless radical reforms are enacted, the Inter-American Development Bank (IDB) has warned.
The Bank, in its latest Caribbean Quarterly Bulletin, said NIB’s funding deficit - equivalent to 50 per cent of the Bahamas’ $8 billion GDP - represented a “large increase” in the national debt, and major “downside risk” to the economy, without corrective action.
It added, though, that near-term reforms appeared unlikely, given the Government’s pre-occupation with Hurricane Matthew recovery, weak economic growth and still-high unemployment, which has now been exacerbated by Standard & Poor’s (S&P) downgrading the Bahamas to ‘junk’ status.
“Beyond the medium term, the national insurance system could pose a risk to fiscal sustainability and debt,” the IDB warned. “The NIB pension, which remains unfunded, represents approximately 50 per cent of GDP.
“With the $1.7 billion reserve fund being exhausted in 2029, this could trigger a fiscal crisis and large increases in national debt, beyond the already high levels.”
The IDB’s concerns are drawn from a recent International Monetary Fund (IMF) report on NIB and other Caribbean social security schemes, which called on the Bahamas to increase total contribution rates by 50 per cent in percentage terms to help cover the funding gap.
“The corrective actions recommended by the IMF include raising the retirement age to 67, freezing benefits for a two-year period, and increasing contributions to 16.2 per cent from 10.8 per cent,” the IMF said.
“The likelihood of this happening within the near term following Hurricane Matthew and already weak domestic consumption from troubling double-digit unemployment appears remote, and therefore presents a downside risk to the economy.”
Shane Gibson, minister of labour and national insurance, in a previous Tribune Business interview acknowledged the weaknesses identified by the IMF and IDB, but added that it was a question of “when” the Government “pulled the trigger” on reform.
Elsewhere, the IDB said the Bahamas “faces a modest growth outlook”, estimating like Standard & Poor’s (S&P) that GDP growth for 2016 will be just 0.3 per cent - a level below rival Caribbean economies and other small island developing states (SIDS).
Acknowledging that this would be an improvement on the 1.7 per cent economic contraction endured by the Bahamas in 2015, the IDB added: “Growth improved mainly because of increased tourist arrivals of 1.7 per cent.
“The Government’s strategy has been to promote growth through the provision of incentives, airlift subsidies, and tax concessions to encourage large, private tourism-related capital projects, and to enable a faster recovery over the medium term.
“Tourist arrivals are increasing and stabilising the real sector contribution, but risks persist. Air arrivals expanded steadily by 2.7 per cent to June 2016. However, the largest category, sea landings, contributed 1.5 per cent, resulting in growth of 1.7 per cent in total arrivals.”
The IDB added that the Government’s fiscal consolidation plan for 2016-2017, estimating that its projected primary surplus of 0.4 per cent of GDP was likely to become a 0.7 per cent deficit - a negative swing of 1.1 per cent of GDP, or more than $80 million.
“The Bahamas’ fiscal position will be affected by Hurricane Matthew in 2017. The primary balance for 2016-2017 is estimated to be 0.4 per cent of GDP, an improvement from a deficit of -0.2 per cent in the previous fiscal year,” the IDB said.
“However, with the impact of Hurricane Matthew, the Government is expected to finance recuperation costs of essential public services and infrastructure.
“As a result, the primary balance could worsen to about -0.7 per cent of GDP in the current fiscal year and 0.4 percent in the next fiscal year relative to the pre-hurricane shock forecasts.”
The primary balance measures the difference between the Government’s revenues and its recurrent expenditure, with debt servicing (interest) payments on its debt deducted from the latter.
Still, the IDB said that despite Matthew’s impact, the Government’s primary balance had still improved from the 1.7 per cent deficit incurred in the 2013-2014 fiscal year.
“The current medium-term fiscal programme (MTFP) will aid consolidation, and with the widening of the recovery, there is hope that fiscal balances will gradually improve in the medium term, and assist in a gradual decline in the overall central government and publicly guaranteed debt, which currently stands at 74 per cent of GDP,” it added.
“Debt remains high, and above the targeted level within the MTFP. Weak economic performance has impacted the fiscal outcome.”
The IDB said lower international oil prices had helped to improve the Bahamas’ current account deficit and balance of payments position.
“Coming from 22 per cent of GDP in 2014, the current account deficit declined to approximately 11 per cent,” it added. “Lower global oil prices and the reduction in construction imports from the stalled Baha Mar project have improved the external position.
“Investment in energy reforms, within an environment of persistent low oil prices, will be credit positive for the economy, as the current deficit is financed by inflows from private and real estate investment, which could pose downside risks if there is any change in confidence.”
Comments
asiseeit 7 years, 4 months ago
When you have gangsters running the show what do you expect. That 140 million they threw at BOB and will never get back sure could help NIB about now! It is all connected and Bahamians better be ready for some very rough times ahead thanks to the Bahamian Mafia/government!
Baha10 7 years, 4 months ago
The Perfect Storm has formed and is on its way!
Alex_Charles 7 years, 4 months ago
Bravo, stellar performance
banker 7 years, 4 months ago
This represents real misery for a very large majority of Bahamians in the coming years. Widespread poverty for seniors is a sure thing. Sad, sad, sad.
John 7 years, 4 months ago
Can someone please change the channel
Well_mudda_take_sic 7 years, 4 months ago
Hubert Ingraham, Pericles Christie, Julian Francis, James Smith, Michael Halkitis, Wendy Craigg, John Rolle, and of course Sir Snake, are the primary culprits behind the entire financial mess our country finds itself in today. These incompetent buffoons have always put their own very greedy and corrupt personal interests above the interests of the public office(s) they have held or public roles they have played, with very little or no regard whatsoever for the interests of the Bahamian people as a whole.
Honestman 7 years, 4 months ago
A rise in the qualifying age for state pension is inevitable.
Well_mudda_take_sic 7 years, 4 months ago
NIB, BoB, etc. are all de facto bankrupt and our country too will soon be unable to honour its debt obligations thanks to the corrupt Crooked Christie-led PLP government.
The foreign component of our national debt has already gone well beyond the critical mass point. What The Central Bank has done by cutting the Discount Rate is simply acknowledge that we are now well along the path to a devaluation of the Bahamian dollar. Once a 'soft' currency like the Bahamian dollar becomes of no value to Bahamian savers in an economic environment where there are only very high risk alternative investments, including now real estate that will almost certainly result in losses for most of those investors who foolishly feel compelled to chase higher yields, it is not too long before the roosters come home to roost. Lowering BSD borrowing costs to (i) help keep the government's finances afloat and (ii) force private sector savers to invest (squander) their capital in high risk, typically non-productive and loss making, investment alternatives, does absolutely nothing to put our country on an even keel and everything to speed up the timetable for an inevitable devaluation. Our corrupt Crooked Christie-led PLP government has chosen to take the easy road that so many other failed countries have taken to their ruination.
MonkeeDoo 7 years, 4 months ago
http://thetribune.media.clients.ellin...">She will be our next MINISTER OF FINANCE by MonkeeDoo
That Blue Marlin that we love to flash will be like the Jamaican Dollar and we will need 100 marlins to get a single US dollar. It is over for this country now. The NIB execs and the Christie Cabinet should be jailed for criminal negligence !
MonkeeDoo 7 years, 4 months ago
Our Government are just like hard headed children. You tell them "don't do that, don't do that" and when the do it next time they get a cut ass. Christie don't need a cut ass he know's he is a total and absolute failure.
Socrates 7 years, 4 months ago
you talk about the $140mil thrown at BOB, dont forget the $600mil at Bahamasair plus the additional $100mil just recently for the new planes... talk about wasting money....
DDK 7 years, 4 months ago
Is this not a fine time to eliminate or certainly reduce the provisions of the Hotel Encouragement Act?
Economist 7 years, 4 months ago
It is time for us to collect the outstanding real property tax from those who have not paid for years, if ever.
It is time for us to shut down Bahamasair.
It is time for us to collect All our customs duties but to do so they will have to fire a number of corrupt Customs Officers.
And the list goes on.
sheeprunner12 7 years, 4 months ago
That is why the PLP, Ingraham and the LBT-backers are so afraid of Hubert Minnis .......... he will lock up the crooks and restructure the government along private business-like principles
Well_mudda_take_sic 7 years, 3 months ago
Dream on my friend......Minnis would be 100 times worse than all those you mention! Obviously you do not know Minnis very well.
banker 7 years, 3 months ago
Wrong.
Honestman 7 years, 3 months ago
Mudda - you obviously have a thing about Minnis but guess what? Most of us have an even bigger thing about Perry Christie and his career criminal band of brothers.
sheeprunner12 7 years, 3 months ago
Wellmuddatakesic .............. you need to come clean and expose your beef with Minnis ........ we will have three choices for PM in 2017 Perry, LBT and HAM....... Is it not clear by now after the mess of this election cycle that HAM is the best viable option???? ........ Watsayu??????
JohnDoe 7 years, 3 months ago
The article is about NIB unfunded contingent liabilities. Essentially it is saying that a Caribbean economy like the Bahamas cannot afford or fully fund a social security program like NIB. Simply put we cannot afford it. This prognosis can very well apply to NHI as well, but we as Bahamians appear to be unable to see the forest for the trees. We want the benefits from these programs and I guess we expect the sandman, the bogeyman the fairy godmother or just anyone else to pay for the costs. It just don't work that way in real life.
MonkeeDoo 7 years, 3 months ago
JohnDoe: I believe this arises because they have "invested the peoples money" in known poor or ruinous investments. The investment committee members of NIB should be prosecuted for theft !!!! And JAILED ! These decisions will deprive Bahamian workers of their pension savings. This is CRIMINAL JohnDoe !!!
JohnDoe 7 years, 3 months ago
There certainly have been mismanagement and I agree persons must be held accountable. However, even if we were to re-coup every cent we would still have a multi-billion dollar deficit. The issue is structural in that the benefits and liabilities are growing faster than the collections and returns. We are about to implement NHI with the same structural imperfections, especially when you add on the top of that the free-rider and moral hazard issues with respect to public goods that are endemic in our society.
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