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Government and the NIF

Sunday, July 22, 2018

I listened to a conversation between economist Ms Marla Dukharan and Minister Stuart Young on the National Investment Fund (NIF) bond issue. The Minister said that it was not really a loan to the Government since it is the NIF that went out for the bond, the loan. Ms Dukharan, in taking the wider view, saw that the bond will also be a liability to the Government since the NIF was a Government-owned entity. Further, she thought that if the Government needed the money (it could reduce its spending instead) it could have sold part of the shares in the NIF and there would be no increase in Government debt given its present level.

Consider this instead. The NIF holds TT$8 billion in income generating assets for the Government. The Government virtually asked the NIF to pre-pay dividends to the tune of TT$4 billion. The NIF raises a bond of TT$4 billion to facilitate the Government, which at the local level is a loan to the NIF and dividends-income to the Government. It is interesting to know that many years ago when the government found itself in a financial bind it asked TEXTEL to pre-pay dividends. At the wider level, the government has final responsibility for any debts of the NIF—it is a government liability.

Consider the Government’s balance sheet in the context of a corporate entity. It has an asset credit of TT$8 billion, income bearing shares in the NIF. As a wider responsibility, it has a liability for the NIF bond of TT$4 billion. Hence with regard to the bond activity, its balance sheet asset/liability side will show a positive balance of TT$4 billion and on the income/expenditure side an income of TT$4 billion. Hence the corporate government is sitting pretty.

As the years go by the actual dividends will service the loan of the NIF and the balance sheet of the government will see its asset balance returning to the net present value of TT$8 billion.

If the portion of the shares were sold for TT$4 billion the Government would have its initial income of TT$4 billion and an asset value of TT$4 billion with no hope of the net present value of the asset increasing. It could be argued that the Government is not a private sector company and should not be holding income-generating shares. Indeed this is not the view of the Chinese government in one of the more successful economies in the world.

Also, given the need to diversify the economy and the fact that the new automation technologies may make much of low-skilled labour unemployable, dividends from such assets to the Government will be able to fund the various make work, free money schemes that may become necessary.

The last concern was that Government was taking the risk that the companies in the NIF would continue to perform. All business is about risk and government is a business. To any business consultant, the financial and operational risks here are negligible.

Mary K King
St Augustinemother


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