Now that the hype and emotions have died down; I think it prudent to write this article to enlighten Saint Lucians on the importance of the NIC to all of us and the potential dangers that could beset it
The letter of July 3rd from the Director of Finance to the Director of the NIC requesting a bridging loan of EC$70M to $100M at 3% interest to repay two bonds maturing on July 30 and July 31, totaling EC$117M caused outrage and consternation amongst Saint Lucians generally and NIC pensioners in particular.
Firstly, both the Mission and Vision of the NIC speak to the role of the Corporation in national development. The Mission Statement states: “To ensure that every St. Lucian enjoys social and financial protection and to assist in the development of our nation through the efficient collection of contributions, payment of relevant benefits, prudent management of assets, use of cutting edge technology and a cadre of highly skilled staff”
While the Vision Statement speaks to: “An effective, transparent and financially sound institution which is customer- focused, provides social protection to the St. Lucian population and plays a leading role in national development”.
True to its Mission and Vision the NIC has provided loans to Central Government (UWP and SLP administrations) as well as Statutory Corporations, Government companies and other institutions providing national services such as: SLASPA, LUCELEC, WASCO, ST. LUCIA HOUSING AUTHORITY to name a few. Moreover, the Corporation played a critical role when the National Commercial Bank was transformed into the Bank of Saint Lucia.
GOVERNANCE OF THE NIC
The NIC is governed by a seven-member board of directors; two directors representing the Government, two representing workers and two representing employers. The 7th Director is the Executive Director or CEO of the Corporation. The Board reports to the Minister with responsibility for the NIC, in our case it is the Minister for Finance.
As part of its governance structure, the NIC has an investment committee, traditionally headed by the Director of Finance. The Investment Committee is guided by an Investment Policy which is approved by the Board of Directors.
The investment policy which is reviewed periodically outlines, amongst other things, what percentage of the NIC funds is loaned to Government at any one time. I am told that at present this ranges between 15% – 20% and that Government is approaching the upper limit.
In accordance with the NIC Act, the NIC is require to undergo an actuarial review every three to five years. As part of the exercise, the actuary advices the NIC of the minimum rate of returns it should obtain from its investments and assets. I am told that the actuary at the last review advised that a 5% rate of return was needed
WHY THEN DID THIS REQUEST FROM GOVERNMENT CAUSED SUCH CONCERN AND CONSTERNATION?
It is my humble view that both the tone and timing of the letter were inappropriate. The letter appeared more as a directive than a loan request. This therefore undermines the authority of the Board and Investment Committee of the Corporation
This situation gives the public the impressing that the Government has access to the funds of the Corporation without the necessary checks and balances of the Board and Investment Committee. In effect, this created the perception that the Government is now using the NIC funds as an extension of the Government Treasury.
This perception can pose significant risk to the NIC funds. E.g. If employers perceive that the fund is not being adequately managed, then they may decide not to pay their contribution to the NIC or even delay paying their contribution – the fund then suffers
Secondly, why should the Director of Finance, who is also the Chairperson of the Investment Committee request a loan of such magnitude at 3% interest when the actuary has advised that the minimum returns should be in the region of 5%?
This then leads to other questions? Was the loan disbursed and at what interest rate?
If the loan was disbursed at 3%, then the questions which follow are:
Who is protecting the NIC funds and who is protecting the interest of the pensioner? Surely these are the responsibilities of the Board of Directors. In fact, the interest rate on the loan could be higher than 5%, base on the risk profile of Government at this time.
In perusing the board membership they appear to be persons with the requisite knowledge and experience to sit on the Board, of the NIC. They therefore must approach the job with the courage, objectivity and professionalism that the job demands. The people of Saint Lucia deserve no less and history will judge the directors according to their works.
The amount of the loan is extremely large ($70M – $100M) surely this would bring Government’s quota to the maximum or exceed the maximum. This begs another question: Will the investment policy be reviewed to facilitate subsequent loans? Or is this the end of loans to Government for the time being?
THE OVERSIGHT ROLE OF THE MINISTRY OF FINANCE
The Ministry of Finance has an oversight role in the operations of all Statutory Corporations and all finance matters in Government. It is therefore disturbing that in this instance, it is the Ministry of Finance that is causing the NIC, a Statutory Corporation to act imprudently. The tone at the top must be right! If not, God help us!
NIC’s ROLE IN THE ECONOMY
A review of the NIC 2016 -2017 Annual Report revealed the following:
The NIC makes an annual payout of some $90M in the economy; $5M is paid to Government as a contribution to healthcare; and $85M is paid out directly to contributors in the form of benefits with pensioners receiving the largest chunk of $65M or $5.5M every month.
These payments get directly in the economy when pensioners pay their electricity, water and phone bills and visit the supermarket. With high unemployment, these pensioners often times sustain households with large number of dependents. The NIC funds is therefore critical in holding the economy together.
From reviewing an IMF working paper on Social Security Reform in the Caribbean by Nassar, Okwuokei et al, the NIC of Saint Lucia remains the strongest social security institution in the OECS if not the Caribbean. Yes, Saint Lucia, this is so, because of PRUDENT MANAGEMENT OF THE FUND and decisions taken some 17 years ago to make parametric changes to the NIC (including increasing the pension age from 60 to 65 over a 15 year period). Decisions that sister OECS countries are now trying to implement.
The Chairman of the NIC in his message in the NIC 2016 – 2017 Annual Report indicated that the actuary gave the NIC a good bill of health; he states:
“……..The report stated that despite the anticipated increase in benefit expenditure, the reserve is not expected to decrease during the next 20 years. The reserve of the long-term benefits branch will increase in absolute value until 2034. Hence, the National Insurance Fund is considered to be actuarially sound.” This may be so now, but if Government continues to make huge demands on the fund at interest rates lower than what is recommended by the actuary, the life of the fund will be significantly reduce and this would not be FOR THE BENEFIT OF US ALL.
I also note that the NIC has given the following assurance: “We would like to assure all stakeholders, including contributors, pensioners, employees, and other service providers, that we would not take any decision that would either impair the Corporation’s ability to discharge its obligations in the normal course of business, or adversely impact the long-term viability of the Corporation.”
MY QUESTION REMAINS: AT WHAT RATE WAS THIS LOAN GIVEN?
So, for all the reasons outlined above, I call on the Minister responsible for the NIC, the Director of Finance, the Board of Directors, the Investment Committee and the Executive Director of the NIC to ensure that good judgement and prudent management of the fund be paramount. FOR THE BENEFIT OF US ALL!