Earlier this year the General Manager reported that the country’s National Insurance Scheme ended 2019 with a deficit of $1.503 billion. The report hardly received the attention it deserved. Guyana after all had become inured to bad news coming out of the NIS: both about its own poor recordkeeping of contribution records submitted by employers for their employees and also about the state of its finances. With depressing regularity, the independent actuary who by law carries out a periodic review every five years, has been warning Guyana about the dangers confronting the Scheme – that it could face collapse unless action was taken by the authorities.
Despite repeated recommendations for increases in the contribution rate, that rate has only been increased three times in the history of the Scheme – to 12% in 1995, from 12% to 13% in 2004 and from 13% to 14% in 2014. Meanwhile, the pay-as-you-go rate which in 1997 was a mere 8% is likely to exceed 17% in 2020. Even at 14%, Guyana ranks second only to Barbados (19.6%) among Caribbean countries in the contribution rate while Jamaica at 5% is the lowest. The revenue potential of the rate is however reduced by the insurable ceiling which is applied to both contribution and benefits but which excludes significant portion of the income of higher paid persons.
From a surplus in 1997, the Scheme is projected to record a historically high deficit in full-year 2020. While income over the same period has increased from $4,200 million to $25,377 million, an increase of 6.04 times, expenditure has increased from $2,182 million to $30,484 million, or by 13.97 times. As a result, annual performance has declined from a surplus of $2,018 million in 1997 to a staggering deficit of $3,391 million in 2020, up from a deficit of $1,502 in 2019. COVID – 19 is expected to cost at least $1,000 million in lost contribution income and benefit claims. These naturally flow into the deficit in 2020.
The most significant portion of expenditure is benefits payment which has grown from $1,736 million in 1997 to $27,905 million in 2020, an increase of 16.07 times. Whereas in 1997 benefits accounted for 80% of expenditure, in 2020 benefit payments are projected to account for 92%, while administrative expenses which accounted for 20.4% in 1997 fell in 2019 to 8.46%. Measured by reference to income, benefits accounted for 41% of total income in 1997 and are projected to account for 109.9% in 2020, while old age pensions which accounted for 24.27% of income in 1997 increased to 76.81% in 2019.
The 9th Actuarial Review calls for a significant increase in contribution rates. Short-term benefit and industrial Benefits were recommended to be increased by 1.55% and 1.00% respectively. Pension benefits were to be increased on the following scale 11.45% (2017 -2018), 13.45% (2019) and 15.45% (2020-2021).
This would result in a total increase of 14.0% for 2017-2018, 16.0% for 2019 and 18.0 for 2020-2021. Unfortunately, nothing has been done, until now.
In 2015, Dr. Ashni Singh made a beneficial intervention and this was followed by Coalition Finance Minister Winston Jordan whose initiative allows the NIS to receive approximately $250 million each year for twenty years. While significant, these are still way short of what is required after decades of neglect and the fear of Governments of the reaction of the private sector. The NIS needs substantial refinancing, legislative changes and the political will to make these happen. It needs as well to take a welfare approach to the purpose and operation of the Scheme. It is heartless to deny a person a pension when there are so many options to provide relief.
Dr. Singh is the NIS subject Minister with the authority to make things happen and his intervention at this point is most welcome. The country looks to him to for at least a medium-term remedy.
