Ambitious government capital spending plans funded largely from borrowing have been called manageable by Moody’s Investors Service in its annual report on the Cayman Islands.
The global credit ratings firm said increases in government debt between 2004/05 and 2007/08 have been due to extraordinary circumstances and do not represent a move away from the traditionally conservative fiscal stance of Caymanian governments.
‘The current fiscal year budget clearly outlines a multi-year ambitious capital expenditure agenda to be financed by substantial borrowing by Cayman Islands’ standards,’ said Moody’s Vice President, Senior Analyst Alessandra Alecci, author of the report.
‘Despite these borrowing plans and some fiscal deterioration associated with rising capital expenditures, the Cayman Islands’ level of indebtedness remains manageable and still well within the ratings’ cohort,’ she said.
Released last week, the report said Cayman has retained its Aa3 foreign currency bond rating – the second highest in the Caribbean behind Bermuda – meaning Moody’s considers the Government is subject to very low credit risk when it comes to meeting its financial obligations.
Other reasons given for the ranking included a very high GDP-per-capita ratio and very strong government indicators, which, it said, reflect sound institutions and policy predictability.
However, any further upgrade to government’s foreign currency bond rating will be limited by vulnerability to hurricanes, dependence on outside sources of growth, and some fiscal inflexibility due to the absence of income tax from government’s revenue base.
‘[The] rating underscores the economic resiliency that has allowed the impressive rebound from the devastation of Hurricane Ivan in 2004,’ Moody’s said in a statement.
Asked about the ranking at a Cabinet press briefing Thursday, Cabinet Minister Arden McLean said it shows things are ‘steady as she goes’ in Cayman.
Since coming to power in 2005, the People’s Progressive Movement Government has faced consistent criticism for the number and scale of capital expenditure projects it has announced – and for plans to fund them by borrowing.
Among projects government has undertaken or plans to undertake are four new schools, a new cruise ship berthing facility, a new government office building, upgrades to Owen Roberts International Airport, new road projects and new sporting stadiums.
Government ministers have maintained the projects are not only necessary, but affordable, and within the scope of borrowing guidelines set down in the Public Management and Finance Law.
The PMFL says governments in Cayman should not spend more than 10 per cent of core government revenue every year on paying off debt.
Leader of the Opposition McKeeva Bush recently tabled a motion in the Legislative Assembly, asking the Government to reconsider and reduce its levels of capital spending and borrowing, warning a US economic downturn will reduce government revenues here.
Chamber of Commerce President James Tibbetts also called on the government to show financial restraint during the Chambers’ Legislative Luncheon 30 January.
‘Government must exercise caution and avoid unnecessary spending at this time when the global economy may be entering a period of recession,’ he said.
‘The budget should be kept in surplus and if there is any prospect that a deficit may occur, the shortfall must be made up by reducing public spending.’
Tabling his motion in the LA 20 February, Mr. Bush said core government public debt would exceed $400 million by the end of 2009 – the equivalent of $10,909 for every person living in the Cayman Islands, he said.
‘Never in our history have the people of this country had so much debt on the shoulders of every man, woman and child,’ he said, prior to the motion being defeated along party lines.
Leader of Government Business Kurt Tibbetts responded saying ‘The truth of the matter is that the majority of capital projects that we have had to embark on…is not because of political expedience, but because of a lack of planning beforehand.’