The Cayman Islands government has been forced to delay some major construction projects in its $676 million spending plan for the fiscal year, which begins in July, but officials said there would be no job losses or service cuts and no new taxes.
Leader of Government Business Kurt Tibbetts said financial planners were able to fund an across-the-board 3.2 per cent pay raise for civil servants. The increase will take effect 1 July, and will be made retroactive from 1 July, 2007.
Government also plans to borrow up to $154 million in the next budget, which would place the central government debt level at a combined $412.7 million by June 2009.
Financial Secretary Kenneth Jefferson said central government revenues for the upcoming fiscal year were projected at $11 million less than they were just six months ago, largely because of fears about a rapidly weakening US economy and skyrocketing oil prices.
Central government’s operating expenses increased by $28.2 million over what was predicted at the end of November.
Government is also expecting to cover some major operating losses within statutory authorities and government companies in the next budget. Those include $7.6 million set aside for the Health Services Authority, $6.9 million for the financially troubled Boatswain’s Beach facility, and $2.7 million to support Cayman Airways.
Still, Mr. Jefferson said he expects Cayman to have an operating surplus of more than $13.5 million by the end of the next fiscal year, in addition to the pay raises and without new revenue measures.
‘These accomplishments are significant given the global challenges that exist currently,’ Mr. Jefferson said.
During his budget policy address, Mr. Tibbetts said that while much of the forecast for the world’s economy is ‘doom and gloom’ he believes Cayman’s finance and tourism industries will help sustain a strong economy.
However, he said Cayman’s spending plan for the coming year reflects a changing global economic outlook.
‘It would be a great mistake if we continue to believe we live in isolation from the world,’ Mr. Tibbetts said. ‘No longer are we the islands that time forgot. Practically every job, every investment decision — the relevance of our education system, our competitiveness as a place to do business is affected by globalisation.’
Mr. Tibbetts noted government revenue losses occurred in part because $6 million in fuel import duty was cut during contract negotiations with Caribbean Utilities Company. He said savings has been passed on to electricity consumers.
‘We consider that money well spent,’ he said.
The largest project to face delay in the upcoming budget is the planned construction of three new high schools on Grand Cayman. Bids have been awarded for the building of new high schools in George Town and Frank Sound. The government is still negotiating a price for the third high school in West Bay.
The schools were scheduled to open in September 2009. They are now expected to be finished in September 2010.
The combined bid price for the first two schools is $115.6 million. It’s likely the bid for the third high school will be in the range of $50 million.
An equity investment of $68 million to start construction of the new schools was placed in this year’s budget, obviously not enough to complete the projects in time for the 2009/10 school year as was first planned.
In an interview the day before government rolled out its spending plan for the coming year, Opposition Leader McKeeva Bush criticised the ‘tremendous borrowing’ plans laid out in the budget and said Cayman doesn’t need that kind of expenditure.
‘They (the People’s Progressive Movement government) have not managed the economy of this country in a proper way, they have not been fiscally prudent,’ Mr. Bush said.
Opposition members have previously criticised the PPM as big spenders that aren’t leaving enough cash aside in case a hurricane or other natural disaster befalls the islands.
Mr. Jefferson, who is not an elected member of the government, said both Cayman’s debt and its cash reserves are well within what the law requires.
However, the Financial Secretary noted the economic outlook for Cayman over the next two years is less positive than it was in the middle of the decade.
Cayman Islands forecast just 1.7 per cent growth in its growth domestic product for calendar year 2008, and 1.4 per cent growth for 2009. Meanwhile, inflation was expected to rise by at least three per cent in each of the next two years.
Unemployment rates are also projected to increase to 4.1 per cent this year, and jump again in 2009 to 4.5 per cent.
Although stayover tourism numbers have been steadily increasing, the island’s overall tourism business is expected to take a hit over the next two years as the effects of what’s generally acknowledged as a US recession take hold. US residents account for more than 80 per cent of the Cayman Islands’ stayover visitors.
Mr. Jefferson said the Department of Tourism is working hard to appeal to customers in other markets like Canada and Europe whose currency is stronger against the fading US dollar.
He said the Cayman Islands financial sector remains strong and that several recent cuts in the US prime interest rate have caused local mortgage rates to drop.
The Cayman Islands Monetary Authority reported a near 15 per cent increase in the number of mutual funds registered here for the 12 months ended in March 2008. Forty of the world’s top 50 banks are licensed in Cayman and the Cayman Islands Stock Exchange also reported an increase in listings over the past year.
‘It’s not all doom and gloom,’ Mr. Jefferson said.