Facing huge deficits that could impair its financial sustainability, the National Insurance Scheme (NIS) is eyeing investing overseas but Minister of Finance Winston Jordan has urged that it look closer to home in areas such as the housing sector that could prove lucrative.
“As we contemplate this long term investment policy, we must be careful about what we invest in. You know Guyanese got this thing yuh call ‘big eyed’? You know the story of the dog and the bone? When the dog go to the pond and he see the bigger bone in the pond and he drop that one [he had]? What happened? He lost corn and husk,” Jordan said, as he gave the feature address at a NIS 50th Anniversary event last Wednesday.
“We have to be careful. Yes, the investment today in treasury bills is returning virtually nothing, but at the same time, it is safe. So I would pick a bone with the chairman about sending our money into lands where we don’t have that security. As I whispered in his ears, two financial institutions in Guyana had invested in secure bonds in a certain CARICOM country and now they are impaired. We have to be careful,” he emphasised.
Prior to Jordan’s address, Chairman of the NIS Board John Seeram had said in his Chairman’s Report that the agency is still faced with net income deficit and future uncertainty with regards to financial sustainability. Seeram, an auditor, said that he believes the NIS should consider other options for investments. He had indicated that NIS’ investment portfolio has not been earning the rates of returns on some of its bonds and shares in keeping with global returns.
“We will need to consider purchasing more attractive bonds and shares which are being traded on the global stock markets as against renewing the terms of the securities. Going this route, and which is highly recommended, will require approval by the relevant authorities,” Seeram said.
Jordan recalled that one of the recommendations made in the last actuarial report was for the NIS to implement a
formal Long-Term Investment Policy. He emphasised that those investment decisions must be sound, less the agency again ends up with failed investments.
The minister highlighted that investments in foreign stocks are not as simple as many take it to be because currency exchange factors also play an integral part in the calculation of returns.
“And in any case, to take $5 million of NIS money to be invested on stock markets in New York requires it to be converted to US dollars. When you are converting Guyana [dollars] to US [dollars], you’re converting at the selling rate. So if the selling rate is $218 and you take that and invest and you get a return of US$1 million in the first year, that US$1 million will come back into Guyana at the buying rate, which might be $215, $212. So you’re going to be losing. So the earnings that you get, adjusted for this difference, plus inflation, must be high enough for you to make that investment. So don’t be big-eyed. You have to do the analysis to determine if that bone over there is worth going after than this bone that you have,” he said.
Pari passu
Jordan further highlighted that there are other aspects to examine if the NIS is mulling moving money into another territory where it has no jurisdiction and where they don’t know if the currency ranks ‘pari passu’. He pointed to the case of CLICO and said that the value of the Guyana dollar was extremely low compared to the Bahamian dollar and when that money was lost, that deficit became taxpayers’ burden. “They said they never even saw any money coming from Guyana. While everybody was pursuing their money, Guyana could not [do] anything because no money went by wire transfer,” he added.
The minister emphasised that financial analysis must be done before any decision.
“I urge the Board to start this discussion immediately if it hasn’t already, because all of us have to be concerned [about] the viability and sustainability of the NIS. More concerned that notwithstanding the improvements acknowledged and recognised over the last year or so, there still remains a worrying deficit. In this new long-term investment policy, you will have to eschew investments that are risky, that do not get the board’s approval, that do get the minister’s approval in keeping with the [legislation]. Immediately what comes to mind is the lost CLICO investment which has cost taxpayers and is costing the taxpayers and even you the NIS,” he said.
“If I had that money available, rather than have to take it out in the way that I am doing, I could have improved benefits all around. People don’t understand some of these matters. We had to take over the CLICO debt and it is being paid from taxpayers’ money, both in principal and in interest…We must also eschew investments like those in the Berbice Bridge. Investments that are bringing you nothing. We must eschew NIS being used as a slush fund for friends and friendly institutions. There was a time when friendly institutions, commercial institutions should have gone to the commercial banks [but] were using NIS and NIS’ money. That time is gone and I hope, certainly under my watch, to never be returned,” he added.
Housing investments
Jordan urged the NIS to look at investing locally with other government agencies such as the Central Housing and Planning Authority (CHPA) as he highlighted that there is a demand for real estate since the oil and gas boom.
“There’s a huge demand for housing and office space. I say to you, get your property section going. And see where you can invest and get a quick, fast return that is better than the one you are getting on treasury bills…There’s a huge demand for housing and if you work with CH&PA, work with known groups…to see how we can continue to do our social part by creating more housing, while also improving monies we receive,” he said.
Hailing the still to be operationalised Natural Resource Fund (NRF), Jordan said that it can be used as a reference point for implementing sound measures to ensure stability and transparency.
“That is why they can jump high and jump low. That [NRF] is built to ensure that it is nobody’s slush fund. It is no one’s money. It is not there for a select few politicians to dip their hands wherever they feel like; to put their hands in and damage the future of all the citizens of this country. They can jump high and low. That fund will stand the test of time for its transparency and accountability and manageability,” he said.
“The world is changing and you have to adapt prudently to changes in order to stay relevant. You have to begin to make investments that yield higher returns,” he added.
General Manager Holly Greaves had noted that with regards to the NIS’s financial performance, at the end of December 2018, the Fund stood at $32.9 billion.
A brief examination of its performance over the period January to August 2019 revealed that the NIS collected $15.8 billion or 59 per cent of the $26.6 billion budgeted target for 2019. A further $9 billion is projected to be collected between September-December 2019. As a result, the projected revenue stands at $24.8 billion.
On the expenditure side, over the period January to August 2019, the NIS expended $16.8 billion or 65 per cent of its $25.7 billion budgetary allocation for current expenditure.
The primary contributing factor to the escalating total expenses was benefits payments of $15.3 billion, which represented approximately 66 per cent of the expenditure as at August 31, 2019. The pension branch accounted for $14.3 billion or 93 per cent, while the short-term and industrial branches accounted for $960 million or 6 per cent and $155 million or 1 per cent, respectively.
Total expenditure is projected at $26.6 billion, which would mean that the NIS would be disbursing more than it is collecting.
