The following statement was issued by the Grouping of Civil Society Organisations on the 50% Haircut that the New National Party (NNP) government of Prime Minister Dr. Keith Mitchell is seking from the National Insurance Scheme
On Thursday, July 10th, 2014, representatives of the Grouping of Civil Society Organisations, scheduled a meeting with representatives of the Grenada Trade Union Council and the Conference of Churches Grenada to discuss the proposed haircut request to the National Insurance Scheme.
The Grenada Trade Union Council was represented by Sen. Raymond Roberts who articulated the GTUC’s unequivocal opposition to the proposed haircut.
The Conference of Churches did not attend but informed the representatives of the Grouping of CSO of its thoughts on the issue via e-mail.
The Grouping of CSOs hereunder issues its own independent statement on the proposed haircut.
STATEMENT OF THE GROUPING OF CSOs
The Grouping of Civil Society Organisations, has noted, with great concern, public statements made by representatives of the Government of Grenada that the government has proposed a 50 to 60 percent haircut from the National Insurance Scheme re the public debt of EC$92 million held in 2025 bonds.
The Grouping of Civil Society declares its categorical opposition to any haircut in respect of the National Insurance Scheme.
The National Insurance Scheme is a social security scheme set up in 1983 to which workers and employers make mandatory contributions to facilitate a flow of benefits to all employees and self-employed, who have made contributions.
These benefits include pension benefits, disability, employment injury, maternity and sickness benefits.
This scheme was set up, particularly to provide for the vast majority of low wage workers, whose places of employment did not have any provisions for pension payments or other social security benefits.
NIS pension payments are therefore the only pension benefits that they will have in retirement.
It is important to note the following:
With the collapse of the CL Financial Group in 2009, there is an even greater dependence on NIS pension payments. The pension schemes of many private work places were held with CLICO while individuals whohad made their own investments in pension plans also held these with CLICO.
To date, some five years later, there has not been any resolution on the CLICO matter and there is uncertainty about whether those workplaces and individuals will recoup any monies.
NIS itself suffered significant losses from its investments in CLICO and BAICO.
NIS pensions are significantly smaller than incomes earned by persons who made contributions.
NIS earns about two-thirds of its income from contributions. Due to its financial situation, Government’s contributions to NIS, on behalf of workers in the public service, are not made in a timely manner.
This tardiness in payment lowers the level of the income stream to the NIS and deprives it of the opportunity to improve its reserves by earning interest on these contributions. It is therefore reasonable to conclude that the government already enjoys concessions from the NIS.
Apart from contributions, other sources of income for the NIS come from investments which include government paper. In 20121, investment in central government paper stood at EC$186.8 million, equivalent to 25 percent of NIS assets of which EC$92 million are 2025 bonds.
These bonds are therefore equivalent to about 12 percent of NIS assets. In addition, the NIS has exposure to various statutory bodies totaling EC$58.5 million.
The IMF Staff Report advises that, based on the 2009 actuarial review, expenditures of the NIS will likely exceed contributions by 2017 and exceed its total income by 2029, thus beginning the depletion of its reserves. None of the recommendations to address this situation has yet been implemented.
The proposed haircut will have a negative impact on the financial position of the NIS, accelerating its operational deficit by about five to six years so that by 2022/23 it will need to dip into its reserves to meet its expenditures.
The IMF predicts that, over the three year period of the Structural Adjustment Programme, average growth in the economy will be just about 1.5 percent. There is also the high risk that there will be negative growth. This means therefore that it is highly likely that NIS income from contributions will continue to decline.
In light of the foregoing information, it is the view of the Grouping of Civil Society Organisations, that, in this debt restructuring process, the NIS, as a social security scheme, is sacrosanct.
As far as the Grouping is aware, there is no precedent in the region or elsewhere where social security schemes have been required to participate in debt restructuring.
The Grouping of CSOs notes that certain creditors are excluded from the debt restructuring process and recommends that this exclusion should also apply to the NIS.