The Cayman Islands government has asked chief officers to reduce their budgets by six per cent across the board this year following predictions that revenues to government will drop some $15 million below estimates.
The government will also defer hiring for most new positions, including those at government-owned companies and statutory authorities.
Chief Secretary George McCarthy said restrictions on hiring would not include essential personnel such as doctors, nurses and police officers.
‘Although it is hard at this stage to predict the full impact of the global financial crisis and economic slow down on the Cayman economy and specifically on government’s finances, early action is the key to minimising its impact,’ Mr. McCarthy said in a written statement.
The budget reduction requested by Cabinet last week is for the current fiscal year, which stretches from 1 July, 2008, to 30 June, 2009. It’s not known what reductions, if any, would be needed in next year’s budget.
Mr. McCarthy urged department managers to find ‘creative ways’ to cut expenditure and said the six per cent reduction in this year’s budget should not be viewed as a precursor to job cuts.
Some 3,800 people work for the Cayman Islands civil service, and more than 1,000 are employed in statutory authorities and government companies.
Leader of Government Business Kurt Tibbetts said his administration had no intention to halt work on major construction projects, such as the new government office accommodation project and three new high schools.
‘These major government construction projects are providing employment to hundreds of workers and are injecting millions of dollars directly into the local economy on a monthly basis,’ Mr. Tibbetts said.
Mr. Tibbetts has said previously that other projects would have to be delayed because of the expected drop in revenues.
There is no direct taxation in the Cayman Islands. Government receives the majority of its operating cash from sources like customs duty on imports, visitor arrival fees, immigration fees, professional and business licensing fees, stamp duty on property purchases and other fees for government services.
All of those areas can be affected by a slow down in the global economy, particularly in the United States where Cayman gets some 80 per cent of its stay-over visitors.
Fewer visitors mean less revenue, not only for government, but for tourism-related businesses, which could in turn lead to fewer jobs. Fewer jobs could lead to a reduction in the needs for services, which could lead to a reduction in imports, as well as business and immigration related fees collected.
Earlier this month, opposition party members criticised the government for spending too much on so many large construction projects all at once. Opposition Leader McKeeva Bush said he told government leaders in February to start making efforts to reduce spending.
‘We need to…redraw our plans, cut our expenditure where we can,’ Mr. Bush told an audience at the Westin Casuarina Resort on 16 October. ‘Perhaps they are a little bit late in coming forward, but better late than never.’
Other opposition party members said government should look at more innovative ways to cut back. West Bay MLA Rolston Anglin said officials should consider whether a pension should be provided under the law for every foreign worker who comes to Cayman as a permit holder, especially those who do not stay in the islands.
‘We’re paying to support retirement systems in other countries,’ Mr. Anglin said.
Some audience members at the 16 October meeting asked whether the issue of potential job cutbacks could be addressed by ‘jettisoning work permit holders.’
Mr. Anglin said that was an overly simplistic way of looking at the problem, particularly in the international finance industry where businesses are typically controlled by foreign offices. He urged government to work with the finance sector to improve the services Cayman offers.
‘We have to realise the realities of that industry,’ he said. ‘Direct revenue from the financial services industry is somewhere in the region of $85 million. How many of you believe that government can tax each of us to get $85 million more dollars? There’s a knock on effect.’
‘I’d much rather for a Caymanian to come to me…and say ‘well, I want more training and I think my company should be mandated to give me more training so I can get higher in my organisation’ versus coming to me and saying ‘oh well, Goldman Sachs is now gone and I need to find another job.”
Mr. Tibbetts said the government has already formed an advisory committee made up of private sector business owners and Cabinet members to help assess the potential affects of the global economic downturn.
He has described 2009 as ‘a year of tightening’ for Cayman, but has sought to downplay negative speculation about the state of the local economy.
‘The Cayman Islands has a proven track record of sound financial management,’ Mr. Tibbetts said. ‘We have every reason to be confident that with God’s grace and our own efforts we will weather the present global storm and emerge from it stronger than ever.’