A big lying red herring.

This article was published in the TT Sunday Guardian 2021 07 04

?

Managing a government is a messy and chaotic affair as issues randomly appear, which is why former England prime minister Harold Wilson sad that a week is a long time in politics. And it has been a long, difficult week.

On June 21st, Caribbean Airlines announced a first quarter loss of $172 million and the retrenchment of 450 staff, both arising from a 75% drop in revenue On the 24th the National Gas company published a loss of $3.1 billion before tax. On the 25th, the finance minister presented the National Insurance Board’s (NIB) financial reports for 2019 and 2020 which showed benefit payments were greater than contributions. On the 28th the National Enterprises Ltd (NEL) reported a total comprehensive loss of $270 million for the year ended March 31, 2021, following its loss of $527.5 million in 2020. Then came the bills on Tobago.

Sandwiched between these announcements, Heritage Petroleum reported that it had achieved a profit of $1 billion for the year ended September 2020. Since Heritage is one of four companies which comprises the Petrotrin Holdings Group, the report should have incorporated the results of its sister companies and the company’s capacity to pay the Groups foreign loans. The silence in that regard was deafening.

These reports follow a pattern of deficits in keeping with the government’s ongoing weak fiscal position and increased borrowing. None of this is sustainable. NIB’s financial position is concerning since the recommendations for its repair are well known. What is also disconcerting is that the NIB reports for 2019 and 2020 were brought to Parliament nineteen (19) and seven (7) months respectively after the statutory deadline for their presentation had passed.

The reports were presented after the Court gave a plaintiff clearance to take legal action to force the minister to present the reports. Such is the minister’s regard for parliament and the public, that he has not thought it fit to offer either an apology or an explanation for what is a clear breach, if not disregard, for the law.

NIB operates on what is known as a “pay as you go” basis. What this means is that contributions to the fund (NIS deductions) are meant to be sufficient to pay benefits and have some money left over to make investments to cater for the future.?When examined in conjunction with other reports for the period 2015 to 2020 there are some alarming trends.

First, the number of contributors to the NIB has been declining. Between 2015 and 2020 the number of contributors declined from 516,926 to 404,197, a decline of 21.8%. Whilst contributions did increase, from $4.2 billion to $4.7 billion, benefits payments increased by a much faster rate from $4.2 billion to $5.35 billion. After accounting for administrative costs, the deficit between contributions and payments increased from $159 million to $916 million. The gap is expected to increase unless action is taken to correct the imbalance.

The Trinidad and Tobago National Insurance Act 35 of 1971 mandates that an actuarial review be performed every 5 years to determine the capacity of the fund to meet its obligations as they fall due. The last report (the 10th) was done on the financial data for the period ending 2016 and presented in 2018. That means that a report is now due.

The actuaries’ opinion is presented in Section 15 of the report, on page 102. It says unambiguously “we hereby certify that the National Insurance System of Trinidad and Tobago is not financially sustainable over the period covered by the projections in this report. This means that in considering applicable financing rules and the future demographic and economic environment in which it will operate, the current assets of the NIS, together with future contributions, will not be sufficient to pay all future benefits and administrative and operational expenses over the period covered by the projections in this report.”

The reasons for this are well know to the minister as they are to the public. TT is ageing; people are living longer, and the birth rate has plummeted. This is unsustainable and the measures to correct or at least mitigate these trends have been articulated in the last three reports. First, the retirement age must be increased as people will need to work longer to contribute longer. Second, contributions need to be increased. Third, benefits need to slowed or frozen to keep pace with contributions. In addition, people need to be encouraged to save more on their own.

None of this is rocket science but it will require political will and engagement with the public to achieve some consensus.

?The fund might be $28 billion today, but the leakage process is well underway and irreversible unless strong and determined action is taken quickly; small leaks will also sink a big ship. The Heritage and Stabalisation Fund is invested in foreign currency in a strong and robust financial market abroad. The NIB fund is primarily invested domestically with all the downside risks associated with a small market. It may be politically useful to distract, defer and deflect blame but it does not help the country.?