Reliance on the NIS
Mon, September 17, 2012 - 10:30 AM
A NEWLY PUBLISHED ANALYSIS of local National Insurance Scheme (NIS) funding has found that the percentage of Government’s outstanding debt held by NIS is virtually the same as it was in the late 1990s.
Furthermore, the level of investment in Government debt has increased commensurate with higher NIS surpluses.
This is according to a study entitled A Note On NIS Financing that was conducted by the Debt Unit of the Research and Economic Analysis Department of the Central Bank of Barbados.
The study, which was published in the August edition of the Bank’s online journal Economic Review, said the findings suggest that NIS’ level of exposure to Government debt is midway between social security exposure levels observed in a sample of developing and developed countries.
It noted that the rebalancing of NIS’ investments has succeeded in reducing the short-term bias in its portfolio in favour of more long-term assets, thereby improving the match between asset and liability maturities.
The study acknowledged that the NIS’ role as a major financier of Government operations and an agent of macro-economic stabilization has become increasingly important since the social security scheme had become the largest single purchaser of domestic Government securities.
“During the 1980s, as small NIS surpluses began to build, the fund increasingly invested these in available Government paper.
“By the end of 1991, NIS-held securities accounted for nearly 42 per cent of outstanding Government securities. While growth in NIS surpluses continued to fuel their purchases of these securities into the early 1990s, the fiscal crises during that period resulted in a much faster increase in the overall level of debt,” the report stated.
It was noted that while NIS-held securities increased on average by ten per cent between 1990 and 1993, overall securities rose by twice that rate over the same period.
As a result, the ratio of NIS-held securities to the total fell to a low of 27 per cent by 1994. Nevertheless, as the growth rate in debt slowed and NIS surpluses increased throughout the decade, the ratio climbed again to an average of 37 per cent during the 1990s.
“Subsequently, the pension reforms of 2003 to 2006 more than doubled NIS surpluses and provided additional revenue for NIS’ investment.
“The result was a further increase in NIS’ holdings of Government securities, which further increased the ratio to around 43 per cent by end-2011,” the study said.
When expressed in relation to total debt, NIS’ holdings of debentures, Treasury Notes and T-bills followed a similar pattern, rising during the early 1980s to around one-fifth of total debt by 1991.
As Government issued more securities as a percentage of total debt during the 1990s and NIS surpluses increased, the NIS became increasingly important as an investor in Government debt.
This level of investment peaked in 1998, when NIS-held securities as a percentage of total debt rose to 27 per cent. Despite a decline in the early 1990s, the ratio began to climb again in 2006, returning to its peak level by 2011. (NB)
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