$2bn pension liability ‘blows everything up’ – Bahamas Tribune

Posted: June 11, 2021 at 12:20 pm

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An ex-Cabinet minister yesterday warned we blow everything up if an estimated $2bn in unfunded civil service pension liabilities is added to the national debt, adding: We never thought judgment day would come.

Dr Duane Sands, former minister of health, told Tribune Business that we have to do a lot of things right if The Bahamas is to extract itself from an economic and sovereign debt crisis that has been both accelerated and worsened by a combination of Hurricane Dorian and COVID-19.

Speaking after giving a sobering budget debate contribution in the House of Assembly, he argued that the government, all politicians and the Bahamian people must call a spade a spade and take ownership of the problems that threaten to engulf the country if not rapidly addressed.

Arguing that austerity measures will be less painful if The Bahamas takes control of its own destiny rather than letting them be managed by the likes of the International Monetary Fund (IMF), Dr Sands said this nation will now have to abandon the near-50 year practice of borrowing to cover government deficits that it has employed since independence.

The Elizabeth MP, acknowledging that many Bahamians were likely unaware of how their living standards, disposable incomes and quality of life stand to be affected by the measures the government will take to address its fiscal woes, also conceded that the country has effectively mortgaged its future for several generations to come as a result of the debt taken on both pre-COVID and during the pandemic.

Confirming that his budget debate contribution had delivered this message in not so many words, Dr Sands said The Bahamas cannot afford to ignore the fact that it is in deep, deep trouble due to the condition of both the economy and the public finances.

Its scary, but its real. Its factual, Dr Sands told this newspaper of the countrys economic and fiscal outlook. The first thing is that weve got to claim it, and if we dont claim it we will never start. Weve got to call a spade a spade. We cannot pretend things arent what they are. We never thought judgment day would come. Its going to be an awful lot of work. Its going to be awkward, uncomfortable things politically to dig ourselves out of this mess.

I dont think we had much choice with this Budget. You have got to set the stage that the belt tightening comes, that we address these issues that we have kind of swept under the rug for so long. Hope is not a fiscal strategy. Something as simple as looking at the unfunded pension liabilities. We aint talking about that. If we put that on the books it blows everything up.

The governments finances, which project that the direct national debt will hit $10.386bn by end-June 2022,are calculated on a cash basis. They have yet to switch to accrual-based accounting, which measures future spending commitments that have yet to be incurred and, as a result, the true extent of The Bahamas liabilities is not measured or disclosed annually.

Among the items not covered by the national debt are the Governments unfunded public sector pension liabilities, which are currently financed like a pay-as-you-go scheme via an annual Budget allocation. The amount provided for this in the 2021-2022 Budget is $116.1m, which is projected to increase by more than $119m in 2023-2024.

Previous research by the KPMG accounting firm projected that these unfunded liabilities will likely be around $2bn at this stage which, when added to the national debt, would take it well over $12bn by end-June 2022. Marlon Johnson, the Ministry of Finances acting financial secretary, said the Government was now collating information from various government departments and agencies to help create recommendations for addressing the issue.

But the International Monetary Fund (IMF), as recently as its 2018 Article IV report on The Bahamas, warned that the current system - where civil servants contribute nothing to funding their retirement - is unsustainable.

The Washington DC-based fund listed civil service pensions, together with the public sectors wage bill and loss-making state-owned enterprises (SOEs), as three key reforms that the government must target if it is to reverse The Bahamas fiscal decline - and that was before both Hurricane Dorian and the COVID-19 pandemic.

The civil servants pension system is unsustainable, the IMF warned two years ago. Government employees draw pensions at retirement without contributing to the system while employed. Staff analysis in the 2016 Article IV Staff report noted that accrued government pension liabilities totaled $1.5bn in 2012, and would rise to $3.7bn by 2030 as the population ages.

The IMF called for reforms that involve moving to a contributory regime in the near term, and to a defined-contribution scheme in the medium-term. This would require civil servants to contribute a portion of their salary to funding their retirement, rather than having this financed 100 percent by the taxpayer through the budget - as is done currently.

And a presentation delivered by KPMG in 2013, the early years of the last Christie administration, estimated the unfunded, pay-as-you-go, civil service pension liabilities at around $1.5bn. These liabilities were set to increase to $2.5bn by 2022, and $4.1bn by 2032, unless reforms wereenacted - and this is still yet to happen.

Dr Sands, meanwhile, backed the Governments position that The Bahamas must focus on stronger economic growth as the primary solution for its present crisis since austerity measures - new and/or increased taxes, and spending cuts - would not be enough by themselves.

We have to grow our economy, and the way we do that is making sure we take out a lot of the blockages to successful businesses or removing the things that cause businesses to fail prematurely, he added.

The whole anti-Immigration issue. Theres a level of immigrant expertise, and Im not talking about menial skills; Im talking special, specialist skills. We in The Bahamas have a problem with that, and we have to move beyond that if we are going to thrive.

Im about 60 years-old, and Ive watched this thing wax and wane. Sometimes were in deep trouble, and then things get better, but right now were in deep, deep trouble. You raise a very important question: Does the average Bahamian believe anything I said today? Probably not, because we have made it seem that all we need to do is pick the right guy and well be OK, Dr Sands continued.

There are people who believe that if you dont have it, borrow it. Not for much longer, thats for sure. With the Government set to pay more than $512m in debt servicing costs alone during the 2021-2022 fiscal year, and repay some $900m in principal to investors, Dr Sands suggested that these two obligations alone amounted to 50 percent of the Budget when combined.

We cannot pay it back without substantial growth, he added, and that means we have to do a lot of things right. We have got to be innovative, we have got to be creative and whatever product we have has to be world class.

If were going to stick with tourism it has to be world class; not so-so, not middle of the road. World class. In some instances our tourism product has dropped. We have got to do it right all the time, every time.

View original post here:

$2bn pension liability 'blows everything up' - Bahamas Tribune

Related Post