BRIDGETOWN, Barbados, May 30, 2020 (CMC) – The Barbados government disclosed, yesterday, that more than 40,000 claims for unemployment benefits had been made to the National Insurance Scheme (NIS), as it outlined proposals to facilitate its objective, of creating much-needed fiscal space, given the projected decline in revenues, occasioned by the coronavirus (COVID-19) pandemic.
According to a government statement, issued here, officials of the Ministry of Finance have been meeting with representatives of the labour unions, to discuss the proposals and, as of May 27th,“ some 41,836 claims for unemployment had been made to the National Insurance Scheme, which represents almost one-third of the workforce.
“Given this untenable number of persons now unemployed and projections for further declines in employment, the level of contributions to the Unemployment Fund will be significantly reduced. The government, therefore, has the fiduciary responsibility to finance shortfalls.”
The Finance Ministry statement explained that discussions, centred on how the government can maintain social stability, in light of an escalating unemployment situation in the private sector, which threatens to further destabilize the government’s revenue.
“The Ministry of Finance gave the assurance that, notwithstanding the challenge, government is committed to the objective of job retention, within the public service, over the next 18 months, except where, as previously stated, the objective of efficiency is being pursued.”
The statement revealed that the main tenet of the proposal, is the opportunity to redirect funds, now earmarked for public expenditure on wages and salaries, to generate as much economic activity, as possible, within the country, by shifting them to capital expenditure.
It said this would allow the Mia Mottley government to finance an expansion of its capital works program, to create more jobs and complete urgent construction works, without further impacting the fiscal targets, and to put as many people back to work, as possible, thereby easing the burden on the government’s responsibility to finance unemployment benefits claims.
The statement said, in the face of this scenario, the Ministry of Finance has recognised that the public service can play a key role in the stabilization efforts, during this challenging time, and has devised a program to achieve this, without, in any way, disadvantaging these workers.
It said the Barbados National Savings Scheme (BOSS) “is like any meeting turn”, except that you earn an attractive rate of interest on the money you save, every six months, and then you get back your savings, after four years.
“It is therefore, designed to provide an opportunity for public servants to optimize on the savings/investment opportunity, given the current market conditions for interest rates, whilst allowing the government to temporarily shift a portion of its wage bill to capital expenditure.”
The statement added that the idea is to pay workers a portion of their salary in cash, and the remainder, estimated at about 10 percent, on average, in a bond.
“By doing so, only the portion paid in cash is recorded as an item of expenditure on the government’s books, but not the portion paid as a bond – which is recorded as debt. So government is now able to shift the monies that are not needed to pay the bonds now, into its capital program.”
The statement said that the worker would still get his/her full salary, but a portion of the salary is paid in a bond, which can be easily and seamlessly converted into cash, if needed, once the public officer exercises that option.
“To compensate the worker for freeing up a significant amount of cash that the government will then use to finance its critical capital works projects, which will, in turn, benefit all Barbadians through the creation of jobs and the acceleration of economic growth, the government is offering an attractive interest rate on the bonds, of five percent.
“The proposal is to convert a portion of the net take-home monthly pay of public officers, according to the table shown below. It is important to note that public servants, in the first band, that is, those earning less than BDS$3,000, can exercise an option to participate if their circumstances allow, in order to benefit from the savings/investment opportunity.
“Similarly, any public servant can choose to increase their saving options, if their circumstance permit, which would allow them to maximize the savings benefits. For example, a public servant, in the BDS $3,000 to BDS$4,000 band, may choose to save 10 percent in bonds, as opposed to the 7 percent currently offered, and in this regard, the government will accommodate.”
The statement pointed out that given current interest rates in commercial banks and other financial institutions, this proposal presents a great savings opportunity for public workers.
“For example, if you can save just $200 a month in bonds, then, over an 18-month period, you would have saved BDS$3,600 and earned interest of BDS$720, over the four years. The public servant would only earn BDS$21.60, if those funds were saved in a bank”.
The government said that it recognized that some persons may need to have access to all their funds, each month, adding “in those instances, provision has been made for public servants to seamlessly convert bonds into cash.
“As long as the worker indicates, before his/her payday, that he or she prefers to have the bond-value in cash, this will be accommodated at par conversion (a $1 Bond converts into $1 cash). Conversions of bonds, after payday, may incur a small discount, as the public servant would have already benefited from some of the interest on the bond.”