By NEIL HARTNELL
Tribune Business Editor
An ex-Bahamas Development Bank (BDB) chairman yesterday argued that mass COVID-19 related unemployment will give the government "a $2.5bn problem" it has no choice but to finance.
Lynden Nairn told Tribune Business the Minnis administration's estimates of the economic fall-out were too optimistic, and that it appeared to be "preparing for the best and hoping for the best", just hours before the prime minister tightened the nationwide lockdown imposed on The Bahamas and the private sector.
Arguing that the tourism industry's shutdown could leave as many as 100,000 Bahamians jobless, or on reduced incomes, for an indefinite period, he argued that the government needed to extend both the duration and amount of unemployment benefit that will be provided.
Mr Nairn, who was appointed to head the BDB when the current government took office, called for the National Insurance Board's (NIB) unemployment benefit to be extended - or quadrupled - from 13 weeks to 52 weeks given the continuing uncertainty over how long the coronavirus pandemic will last.
And, taking $400 as the "average salary", he suggested that this be the weekly amount workers receive over that period. Acknowledging that this would amount to a $2bn-plus expense for both NIB and the government, each of which has their respective financial challenges, Mr Nairn said there was no alternative but for workers and taxpayers to cover the holes created once the challenge had passed.
Warning that potentially dire socioeconomic consequences meant the government had no choice but to act, Mr Nairn argued that The Bahamas could not afford to leave 100,000 Bahamians "on the street trying to live off a fraction of what they are used to".
While the likes of James Smith, former governor and minister of state for finance, have estimated that the hotel industry's shutdown could leave close to one in three Bahamian workers unemployed and take the national jobless rate to 30 percent, Mr Nairn argued that such projections underestimate the tourism sector's indirect impact on virtually every sector of the economy.
"Because circumstances have changed so drastically, my current recommendation is that as many as 100,000 Bahamians will be laid off, or their work hours or pay substantially reduced," he told Tribune Business. "Accordingly, I believe the Government needs to implement a more comprehensive approach to income replacement and forget the food stamp programme."
He argued that the "food stamp" initiative, unveiled by the Government last week, was "grossly understated" and "Inadequate" based on the thousands of Bahamians laid-off by the hotel sector. This benefit, which is designed to give persons $100 every two weeks until June 30 ($700 in total) will help 7,142 persons based on its $5m budget, Mr Nairn argued.
With Atlantis and Baha Mar likely to lay-off more than that number combined, he added: "Based on anticipated lay-offs at most, if not all, hotels, 7,142 is grossly understated. Moreover, $700 is inadequate for 3.5 months.
"What we need to consider is a much larger number of people receiving unemployment benefit for longer than 13 weeks, which will have significant social ramifications for our country and exacerbate the economic impact. I believe the Government should seek to increase the benefit paid out to people through NIB.
"I think what we should consider doing is amending the unemployment benefit so that the period the benefit is extended to persons goes from 13 weeks to 52 weeks, and the amount from $200 per week to $400 per week," Mr Nairn argued.
"Based on an average salary of $400 per week, if we were to say what would be the cost of paying $400 a week to people for 52 weeks, that would be $2bn a year. One needs to look at that as a $2bn problem and, combined with a government revenue loss that's going to be above $500m, we have a $2.5bn problem."
Mr Nairn said the burden should be split between both the Government and NIB depending on how long the COVID-19 crisis lasts for. He acknowledged NIB's existing financial challenges, with benefit payouts exceeding contribution income for the last several years, and actuarial projections that its $1.6bn reserve fund will be exhausted by the early 2030s unless drastic changes are made.
"If the assumptions I am making come true, then NIB's assets would be significantly impacted to the tune of $1bn," he added. "NIB already has significant under-funding issues. We have to consider alternatives to that. The Government could seek to borrow money, which would result in significant debt and perhaps new and increased taxes.
"We should agree that once The Bahamas emerges from this crisis that the NIB ceiling and contribution rate are going to have to increase to pay for this $1bn to address what we expect to be a significant unemployment crisis. Addressing it will be borne by practically every worker and business in this country. That's how it ought to be: A shared responsibility. We take care of it once we emerge from this crisis."
Arguing that there was no choice but to take such drastic measures, Mr Nairn added: "We cannot have 100,000 individuals on the streets trying to live off a fraction of what they are used to. That will be extremely harmful to this country. You cannot imagine how harmful that will be."
He argued that allowing NIB to take the lead on an expanded unemployment benefit would enable the Government to "take a breather" for four to six months, and give it time to work out how it will finance its share of the potentially $1.5bn financial burden.
"It seems the Government is preparing for the best and hoping for the best," Mr Nairn argued of its current measures. "I would urge that you prepare for the worst and hope for the best. I would urge that you answer this question: What should we be doing, starting now, if we believe the effects of COVID-19 will linger for 12-18 months?"