Depending on whom you speak to – and what numbers are used – Cayman has one of the above. In any case, it appears that 2011/12 will be another adventurous fiscal year for the local government.
The Cayman Islands government and the United Kingdom’s Foreign and Commonwealth Office have a distinct difference of opinion regarding whether the overseas territory is in the black or in
They’re both looking at the same set of figures. The different outcomes are essentially due to one side looking at what currently exists versus the other looking at what is expected to occur.
According to Cayman Islands Premier McKeeva Bush, the country should have a $12 million operating surplus by 30
However, the UK foreign office considers the country to currently have a $61 million deficit, when factoring in items like projected losses in government-run entities and spending on capital (construction) projects. That deficit must be made up in one way or another prior to the end of the fiscal year.
Bush’s administration insists that it
The government’s Annual Plan and Estimates document has, for the first time this year, included a run down of government’s “financing requirements” – basically what it has to spend to pay for capital projects.
“When all is said and done, the government financing requirement is the additional money [Cayman Islands government] needs during 2011/12 to meet its commitments,” read a statement the governor’s office. “Last fiscal year they needed an additional $75 million and the $154 million borrowed was partly for this reason.”
In the current year, the foreign office prevented Cayman from borrowing further. So Cayman has to make up $61 million in financing requirements either from cash reserves or the divestment of certain assets.
“This year [government] indicated that the government financing requirement will be met not from borrowing, but from the reserves,” the governor’s office statement continued.
Government officials said this financing requirement for public projects has never been included previously in figures for operating expenses.
Considering those expenses alone, including losses from statutory authorities and government companies, Cayman expects to end the year with a $3.7 million operating surplus. Premier Bush’s estimate of $12 million did not count the spending to cover operating losses of the government authorities and companies.
$3.7 million vs. $12 million
Cayman’s budget for the current 2011/12 fiscal year contains a forecast $3.68 million operating surplus that is expected to be achieved by the year’s end - 30 June, 2012.
The surplus figure is significantly less than what was stated by Premier McKeeva Bush in his budget address on 10 June.
“Operating revenues are expected to be $535.8 million in 2011/12,” Mr. Bush said. “Operating expenses are projected at $489.9 million in 2011/12. The surplus of government - after deducting $33.8 million of financing costs and expenses arising from foreign exchange transactions - is forecast to be $12.1 million.”
Bush’s assessment - according to budget documents reviewed by the Journal - does not include a projected $8.4 million operating loss by statutory authorities and government-owned companies.
That loss would have to be made up out of the government’s general fund budget, if a deficit from the operation of those companies does occur.
The Journal examined budget documents for several years prior, and up until the 2009/10 fiscal year, operating losses of statutory authorities and government-owned companies were counted as a part of the government’s operating expenses. However, in the 2010/11 budget - the year Cayman just ended on 30 June - a subtle change appears to have been made. As of the 2010/11 year, operating losses of the public authorities and government companies were counted outside of core government’s operations.
In the 2010/11 year, those entities were expected to show a modest overall profit - about $1.8 million, a figure that Bush added to reach an overall budget surplus figure of roughly $4.5 million for the year ending 30 June.
The same figure for the 2011/12 budget - expected as a loss of $8.4 million - was not included in reaching the $12.1 million surplus the Premier announced in his budget address on 10 June.
Mr. Bush has said the UK’s approval of Cayman’s budget was contingent upon government controlling its operational spending – keeping it to approximately $490 million for this year.
The 2011/12 budget contains one new revenue measure, a $1,500 per year fee on certain “master fund” hedge funds. The proceeds from that fee would be used as a rebate to Caribbean Utilities Company to offset residential electricity bills, Bush said.
Following the Premier’s budget address on 10 June, Financial Secretary Ken Jefferson said the Cayman Islands met all of the United Kingdom’s demands with regard to central government operating expenses for the coming year.
For the 2010/11 fiscal year, central government operating expenses were forecast to be $490.2 million, Mr. Jefferson said. Year-end figures had not been produced by press time.
In the budget plan for 2011/12, central government operating expenses are $489.9 million, he said.
However, the figures given by Mr. Jefferson do not include debt service payments, foreign currency exchange costs or any projected debts from statutory authorities and government-owned companies that might arise.
According to budget documents – when those amounts are factored in – the Cayman Islands’ total forecast operating expenses in the 2010/11 budget year were stated as $520.7 million.
For the 2011/12 year, total expenses were budgeted at $532.2 million, about $11.5 million higher than the year before.
UK Overseas Territories Minister Henry Bellingham indicated recently that he had spoken with Bush prior to Bush presenting his government’s budget in the Legislative Assembly.
The discussions took place before the spending plan for the government’s 2011/12 year was revealed in the house on Friday 10 June, Bellingham said.
“The Cayman Islands Government developed their budget in line with those discussions, and with the intention of meeting the targets set in their published medium term plan,” according to a statement from Cayman Islands Governor Duncan Taylor’s office that was attributed to the overseas territories minister.
Since the 2009/10 government fiscal year, the United Kingdom government has assumed more direct control over Cayman’s budget process because of debt levels and other financial missteps, which have put Cayman in violation of several principles of responsible financial management.
The current year’s still does not meet all six requirements listed under the principles of responsible financial management set forth in Cayman’s Public Management and Finance Law.
According to estimates revealed as part of the 2011/12 government budget, the Cayman Islands’ total public sector debt will remain well above $500 million by mid-2014, despite payments of more than $30 million per year until then.
Bush said that as of 30 June Cayman’s public sector debt was expected to reach nearly $626 million (approximately US $726 million).
The country’s net worth was expected to be $485.6 million at that same time. By the end of the current budget year on 30 June, 2012, Premier Bush said public sector debt should have dropped to $599.3 million and net worth will have risen slightly to $489.3 million.
Bush said the ruling government would not take on any more borrowing in either the 2011/12 budget year or in the 2012/13 year, which begins on 1 July, 2012.
“The country’s debt burden will fall,” Bush said. “This is another important first achieved by the government. It is difficult to remember the last budget in which there was no external borrowing proposed.”
During a February broadcast address to the country, Premier Bush stated the “no borrowing” position had been forced on Cayman by the United Kingdom.
“The stance of nil or very little borrowing by the government of the Cayman Islands is one that is being forced upon us,” Bush said at the time. “I was told that the FCO would not permit the government of the Cayman Islands to borrow in the financial year that will start on 1 July.”
Cayman was allowed to borrow US$185 million through 30 June, and has already paid back some US$36 million of that sum.
However, paying off the debt amounts at levels currently forecast will put a strain on the local government coffers going forward.
Cayman is already beholden to pay between $30 million and $40 million in each of the next two budget years just to pay off its debt. Some $33.8 million has been set aside in the 2011/12 year to do that.
Even with these sums, Cayman’s public sector debt will remain large – nearly $550 million by mid-2014, according to Bush.
“For me, that is still too slow a progress,” Bush said in June
Opposition Leader Alden McLaughlin said pronouncements about no more government borrowing were nothing new, and that the UK decided this course in early 2010.
What the Premier was trying to do, McLaughlin said, was use the UK’s ‘no borrowing’ position as a reason to divest government assets and enter into privately financed initiatives for certain government projects.
Bush indicated that privately financed initiatives and public-private partnerships were still on the table with regard to several government projects.
“The primary objective of this strategy is to minimise the financial burden of these developments on the public purse while simultaneously creating new economic activities,” the premier said.
Among those projects were the long-debated George Town cruise ship berthing facility. Bush said it was also his government’s intention to put a cruise ship dock in West Bay and improve arrival facilities at the cruise landing in Spotts.
Other examples included the sale and development of a public-private sewerage system for Grand Cayman and the redevelopment of the Owen Roberts International Airport, he said.
Private projects being undertaken include the development of a medical tourism hospital and a special economic zone – Cayman Enterprise City.
“Once under way, the government’s proposals…will positively impact the previously subdued growth outlook and over the next three years, gross domestic product should grow with a positive impact on citizens and residents of the Cayman Islands,” Bush said.
When does it get better?
Cayman’s unemployment rate, estimated toward the end of last year at 6.7 per cent, is expected to remain higher than normal next year.
A jobless rate of 6.1 per cent was expected to persist through mid-2012.
Premier Bush said there would be a “firm upturn” in employment in 2012 and that “broad-based expansion” of the financial services and tourism industries would be seen in Cayman at that time.
However, local employment was also expected to “lag behind” the economic improvement, largely because of low-growth outlooks in the construction industry.
Through the middle part of 2013, unemployment was expected to stay above 5 per cent, although Bush pointed out this was still a better rate than many struggling western economies – including the US and the UK.