Cayman must borrow to pay civil servants
The Cayman Islands Government finances are in much worse shape than they were in March, Leader of Government Business McKeeva Bush said in a statement Friday.
Mr. Bush identified three areas where he said the previous government had not managed its finances responsibly, including; exceeding the amount of public debt the country is allowed to have; running up a $74 million operating deficit; and holding insufficient cash reserves.
Financial Secretary Kenneth Jefferson confirmed Saturday that the $74 million deficit was the estimate for the current 2008/09 financial year, which runs from 1 July to 30 June.
‘The country is faced with enormous challenges,’ Mr. Bush’s statement read. ‘Full fiscal transparency would have helped everyone better prepare to address these issues.’
Mr. Bush also said the country had incurred a ‘record-level’ of public debt, some $590 million in total, and was expected to end the year on 30 June with only a $17 million ‘cash balance.’
The immediate budget problems facing Cayman would require up to another CI$140 million in borrowing on top of the $185 million bond issue the previous government had floated.
Some of that borrowing, Mr. Bush said, would need to go toward paying government employee salaries and requires the approval of London before going forward since it falls outside the principles of responsible fiscal management.
‘As a result of the former administration’s failure to comply with the principles of responsible financial management that are stipulated in the (Public Management and Finance Law), the Cayman Islands government must now seek the explicit approval of the [UK] Foreign and Commonwealth Office before incurring further borrowings,’ Mr. Bush’s statement read.
Mr. Jefferson said it would be government’s goal to reduce the need for borrowing as much as possible.
‘We obviously can’t sustain that going forward,’ he said.
Former Education Minister and now-opposition government member Alden McLaughlin expressed surprise at the contents of Mr. Bush’s statement.
‘At this stage we have to say that the allegations made in the [Leader of Government Business’] statement are surprising, particularly as they relate to the projected operational deficit, reserves and cash balances,’ he said. ‘This is so because just two weeks before the elections, the financial secretary told Cabinet that the projections given to Finance Committee of an operational deficit of some CI$29M and reserves of CI$126M were holding true.’
Mr. McLaughlin said Mr. Jefferson made the statement in a 5 May Cabinet briefing.
Mr. Jefferson said he would not yet have acquired the financial data that prompted Mr. Bush’s announcement on Friday at the time he spoke to Cabinet before the election.
‘These forecasts took place after the fifth of May.’
Mr. Jefferson said since early March through early June, there was a precipitous drop in government revenues as well as a large increase in projected expenses.
Revenue projections for the year in central government fell from an estimated $507 million to $490 million, Mr. Jefferson said. Expense estimates increased from $496 million to $513 million at that same time.
The combined $34 million turnaround in revenues and expenses makes up most of the $45 million increase in government’s operating deficit.
The government had to nearly double the amount it paid to cover the expenses of statutory authorities and government owned companies. Projected losses there went from $10 million to $19 million. Those projected deficits included CI$10.1 million for the Cayman Turtle Farm, CI$12 million for the Health Services Authority and CI$3 million for Cayman Airways.
Another $1 million in extraordinary expenses was also tacked on between March and June.
Other major financial worries for the government also include cost overruns of some $17 million related to the financing of the construction of new public schools and CI$16 million owed in payables by Cayman Airways for things like landing fees, and payments to local and overseas suppliers, Mr. Bush said in his statement.
On Saturday, Mr. Bush said there were even more surprises coming out.
‘We don’t know yet the cost for roads,’ he said. ‘We understand there is something over $20 million outstanding in land claims for roads.’
Mr. McLaughlin said he could not understand how the operating expenditures could have risen $17 million in such a short period of time. He explained that the amount could not relate to the overruns on the schools project.
‘If there are overruns on the schools or any capital project, this cannot affect operational expenditure,’ he said. ‘This would increase capital costs, not the operational account.
‘Operational expenditure is what it costs to run the business of government. Capital costs are what is spent on things like the construction of schools and the new administration building. They are two distinct accounts.’
Mr. McLaughlin said he couldn’t understand how the cost overruns on the schools could even be quantified at this stage.
‘I know that there were disputes and claims about additional costs [with the schools] that remain to be resolved,’ he said. ‘Until that occurs I don’t know how it can be said what the overruns are. Certainly no one advised me that we were looking at such significant overruns, and I have only just demitted office.
‘And even if the figures are right, I don’t know either how much of that is properly attributable to this fiscal year.’
Mr. McLaughlin suggested there had been a manipulation of the financial picture to make the PPM administration look as bad as possible and that the party would be issuing a full statement this week.
‘In our statement, we will call on the financial secretary to reconcile his representations to Finance Committee in March and to Cabinet in May this year with the LOGB’s statement,’ he said.
Mr. Bush said, despite the difficulties, the government would honour all of its public debt obligations. He said some short-term fixes would be announced in the near future, but that they would not include new revenue measures.
‘There is no way to turn to raise taxes,’ he said. ‘To raise fees would put us in an uncompetitive situation and we can’t afford to do that.’
Longer term, Mr. Bush said government would concentrate on bringing new business activity to Cayman.
‘The key emphasis and immediate goal is to bring in investment quickly,’ he said. ‘Any stumbling blocks will have to be hurdled.’
Mr. Bush said the government would deeply examine the performance of non-central government entities, such as statutory authorities and government companies, and undertake a cost review in central government.
Mr. Bush said Cayman’s financial situation was serious.
‘The country is in dire, dire straits,’ he said. ‘If anyone thinks the country is not in serious shape, they’re making a sad mistake.’