Wednesday, October 11, 2017
By NATARIO McKENZIE
Tribune Business Reporter
THE Bahamas Public Service Union’s (BPSU) former president yesterday argued it was “impossible” for the Government to do the IMF’s bidding and slash the civil service wage bill by $70 million.
John Pinder told Tribune Business there were many services the Government is unable to outsource, either for national security and social reasons, or because they were unprofitable. He instead argued that it should seek out new revenue streams via oil exploration and the Bahamas’ other natural resources.
Responding directly to the International Monetary Fund (IMF) recommendation that the civil service bill be cut by $70 million, or 0.8 per cent of GDP, the former BPSU chief replied: “That’s impossible.
“There are some services that government must render where no will else will go into it because there is no profit in it. For example, due to our geographic nature you have to have police officers, Customs officers and specialist teachers in all these various islands. The Government has to cover all of the basic services. Politics also plays an important role in this thing.”
The IMF, in its full Article IV report, slammed the Christie administration’s “lax spending controls” pre-general election. It revealed that the Government could save taxpayers more than $200 million annually through a combination of public service downsizing and pension reform, plus reduced subsidies to state-owned corporations.
The Fund recommended reducing the civil service wage bill to 2015-2016 levels “at most”, and called for civil servants to share the burden of financing their own retirement income. This is currently borne 100 per cent by the Government, a position that is viewed as unsustainable and a ‘ticking timebomb’ for the country’s fiscal position.
Mr Pinder backed the IMF’s call for reform in this area, saying he had told successive governments for years that the current defined benefit, ‘pay-as-you-go’ scheme was simply unsustainable.
“For years I have been telling successive governments that there needs to be a contributory pension plan for the civil service. The IMF is looking at salaries, emoluments and pensions for persons who would have retired from the civil service,” he added.
“Pension payments have trended up to an estimated 1.1 per cent of GDP in fiscal year 2017, and population aging will increase them further,” the IMF had warned.
“Staff recommended transforming the civil servants’ pension system into a contributory regime in the near term, with contributions commensurate with benefits, and with a view to move to a defined-contribution scheme in the medium term. Setting contributions at 5 per cent of wages for pensionable employees could yield revenues for 0.3 per cent of GDP.”
The saving would be equivalent to $25.2 million per annum, based on an $8.4 billion GDP and the IMF’s figures. The KPMG accounting firm previously estimated the unfunded, ‘pay-as-you-go’, civil service pension liabilities at around $1.5 billion. These liabilities are set to increase to $2.5 billion by 2022, and $4.1 billion by 2032, unless reforms are enacted.
Mr Pinder, meanwhile, urged the Government to explore new revenue sources for financing its bloated bureaucracy. “The Government must begin to look at new source of revenues,” he said, returning to a theme he has raised before.
“One of the ways to do that is by tapping into our national resources. We have to move with haste to allow companies to come in here and drill for oil,” he added.
An IMF graphic showed that the civil service wage bill for the 2017-2018 fiscal year equals close 8.5 per cent of GDP - compared to a 7 per cent average for the 2005-2016 period. The difference between the two is roughly $120.6 million, using the same $8.4 billion total GDP estimate that the IMF would have employed prior to the recent near-28 per cent upward revision from the Department of Statistics.
“The public sector wage bill increased sharply in fiscal year 2017,” the IMF’s Article IV report said. “Staff recommended reducing the wage bill to, at most, the level observed in fiscal year 2016, which would yield savings of 0.8 per cent of GDP—relative to fiscal year 2018— including by reducing non-essential temporary workers (about 30-40 per cent of public employees), enacting a hiring freeze, and capping compensation for re-hired pensioners.”
The IMF’s ‘0.8 per cent of GDP’ is, using the Department of Statistics’ former $8.4 billion figure, equivalent to a $67.2 million cut in the civil service wage bill. Using the Department’s revised $10.22 billion GDP, though, would result in a higher $81.76 million slash.
Brensil Rolle, minister of state for the public service, told Tribune Business: “We are currently conducting a public service audit to determine what we need to do to right size the public service. We will go though the IMF report thoroughly and make a carefully considered decision in the best interest of the country.”
He added: “We realise how the service has been ballooned, particularly because of what has happened leading up to the elections. I have said publicly that we have looked at persons recently contracted to the public service, and we are looking at our needs and their performance. Every ministry is looking at their manpower and human resource needs. The audit will be complete in December to tell the numbers.”