THE INTERNATIONAL MONETARY FUND (IMF) has warned Government about its continued use of National Insurance Scheme (NIS) funds.
The IMF caution has come 24 hours after the Central Bank of Barbados defended the controversial use of NIS funds in the stalled Four Seasons hotel and resort project. Governor Dr DeLisle Worrell said NIS investments in entities such as the Four Seasons project and Government instruments were positive moves.
However, the IMF noted that the NIS’ exposure to Government increased from 54 per cent in 2005 to almost 70 per cent in 2011 and this placed it well above the recommended limit of below 54 per cent.
In its full report released yesterday on the Article IV Consultation conducted last November, the IMF urged Government to limit its use of the country’s social security money to finance public sector borrowing.
While acknowledging that the NIS had limited investment opportunities at this time, the IMF said “dependence on NIS surpluses to finance public borrowing has permitted delays in fiscal adjustment”.
“At close to 70 per cent, NIS’ current exposure to Government is well above the prudential guideline of below 54 per cent recommended in the 2005 actuarial report,” the institution noted.
The IMF cautioned that the NIS was facing increased liabilities as the Barbadian population aged.
It also cautioned that NIS be allowed to better match its assets and liabilities by limiting further exposure to the public sector.
It added: “To increase investment opportunities, it remains important for Barbados to intensify efforts to promote the development of domestic and regional capital markets.”
However, the IMF noted Government’s disagreement with its position that reducing borrowing from the NIS would help the social security fund better match its assets and liabilities.
It said Government maintained that there were limited investments locally, with no domestic investment in the current environment that would yield returns comparable to Government securities.
“[IMF] staff and the authorities, however, concurred that reducing the high fiscal deficits in pursuance of the medium term fiscal strategy will reduce the financing needs of the Government and help reduce the reliance on the NIS,” the IMF said.
The IMF said the two sides also agreed on the need to discourage direct lending to public corporations by the NIS and for the NIS to pay attention to its capacity to monitor the wide range of projects currently being undertaken.
Meanwhile, in its extended report, the IMF said Barbados had been severely affected by the global economic crisis, which had curbed tourism and offshore activity with broader impact on other sectors in the economy.
“The difficult global economy conditions continue to pummel Barbados with growth at anemic levels despite the rebound in tourism, while inflation is surging,” the IMF noted.
The institution reiterated its call for the 2.5 per cent VAT increase of 2010 which is scheduled to be returned to 15 per cent at the end of May, should be made permanent.
It also warned about the increasing levels of non-performing loans in commercial banks, though it said that the local banking system was “stable and well capitalized”.
