In the space of just a few short months, the Cayman Islands Government’s projected operating deficit for the 2008/09 financial year has increased more than two and a half times, from CI$29 million to CI$74.
Although there is debate between the new government and the previous administration as to how this $45 million deficit increase came about, there needs to be questions asked about the way the Financial Secretary Kenneth Jefferson and the Portfolio of Finance and Economics makes their economic projections.
As recently as 5 May, Mr. Jefferson told the previous administration’s Cabinet that the projections for a $29 million deficit and cash reserves of CI$126 million were holding true. Mr. Jefferson has not denied this.
Four weeks later, however, Mr. Jefferson told the new Cabinet that the operating deficit for the current financial year is projected to be $74 million and that there will only be a minimal projected cash balance of $17 million.
The latest projections, he said, were from forecasts that came after 5 May.
Since there weren’t any disastrous events that occurred between 5 May and 2 June, we find it astounding the projections could be so disparate. There is just no way the projections should be that far off in such a short period of time, as long as they were based on reasonable assumptions.
To put the current figures in perspective, a year and a half ago, in the strategic policy statement delivered in Legislative Assembly, the Portfolio of Finance and Economics projected that the Cayman Islands Government would have an operating surplus in the 2008/09 financial year of $49.69 million.
Based on the current projections, the December 2007 forecast was off by CI$123.7 million.
That’s a huge difference.
The flaw in the December 2007 projections was, of course, the global financial meltdown. The Portfolio of Finance and Economics didn’t plan for what was to happen in 2008 and 2009 and made assumptions based on business as usual.
But the Portfolio of Finance and Economics should have seen it coming. That is what they get paid to do. The subprime mortgage crisis was well underway by December 2007, sending tremors through the entire US banking system. People here in the financial industry knew trouble was on its way.
New Minister of Education Rolston Anglin, then a backbencher, saw the flaw in the projections, too, and warned in December 2007 that the economy might not grow they way the Portfolio of Finance and Economics projected.
Maybe there is political pressure brought to bear on the financial secretary to make rosy projections so the government can spend the money on all of the projects it wants to complete. But the Portfolio of Finance and Economics has a duty to the public to base its projections on reality. Assuming the Portfolio of Finance and Economics did that, its projections, in a word, stink.