The previous government knew about estimates of a CI $68 million budget deficit in early February but didn’t want to report those figures to Legislative Assembly members or the public, according to a statement made Wednesday by Cayman Islands Financial Secretary Ken Jefferson.
Instead, Mr. Jefferson said a series of marathon meetings was held in late February and early March aimed at trimming the deficit down to a palatable number – eventually reported as $29 million — at a 20 March meeting of the LA’s finance committee.
However, Mr. Jefferson said the $29 million estimate was ‘unrealistically low’ and that previous administration members were warned about the need to reduce spending in government departments above and beyond the six per cent across-the-board civil service budget cut made in October 2008.
‘The financial secretary advised (in October) that there was a grave danger that without a cost-reduction…exercise, the promised reductions would be spent as time went by in the financial year,’ Mr. Jefferson said. ‘The advice of the Portfolio of Finance and Economics was not taken and government agencies were allowed to continue to spend.’
While admitting the attempt to cut the civil service budget by six percent was a ‘monumental failure,’ former Education Minister and now opposition member Alden McLaughlin said his party has a distinctly different recollection of what occurred between February and March.
Mr. McLaughlin said government efforts to reduce the budget deficit during that time were supported by the financial secretary, who said nary a word about doubts when he presented the estimates to the LA on 20 March.
Speaking in Legislative Assembly last week, Mr. McLaughlin read the Hansard copies of what Mr. Jefferson told the assembly during that finance committee meeting.
Mr. Jefferson stated: ‘These are, in the best of our efforts, realistic figures. We believe the revenue figures and expenditure figures are as reasonable as possible.’
‘How could he have gotten it so wrong?’ Mr. McLaughlin asked earlier this week.
Cayman ended the 2008/09 budget year on 30 June with an operating deficit of $73.7 million and a public sector debt figure of more than $590 million.
The amount of debt the country is carrying now will require any further borrowings to be approved by the United Kingdom’s Foreign and Commonwealth Office.
‘In February of 2009, the Cabinet was given a deficit figure of $68 million…but due to them not wanting to come to the LA with that deficit, the figures were manipulated?’ MLA Cline Glidden, Jr asked Mr. Jefferson during Wednesday’s Legislative Assembly meeting.
‘That’s substantially correct, but I would caution against the use of the word…manipulated,’ Mr. Jefferson responded.
Mr. Jefferson explained that the previous administration had planned on budget savings and revenue increases that never materialised in the last quarter of the 2008/09 fiscal year.
For instance, some $4 million in savings from the Ministry of Health, $1.1 million from the Ministry of Tourism, another $1 million from the Ministry of Education and some $4 million from the Portfolio of Finance and Economics was proposed during budget meetings in February and March.
The previous government also expected revenues of $5 million from an economic stimulus package it approved in the spring, an extra $4.5 million in lease renewals of Crown lands, and $2.3 million additional cash in company fees among other revenue streams.
For the most part, Mr. Jefferson said those savings and revenues were not realised, and government revenues and expenditures fell some $36 million below what was expected. In addition, statutory authorities and government companies, like the Health Services Authority and the Cayman Turtle Farm lost $9 million more than expected.
Mr. Jefferson said that resulted in $45 million being added to the $29 million projected operating deficit figure from March.
Mr. Jefferson said the entirety of that increase was the result of the policies of the previous government.
‘I have not received any instructions from the present government regarding the management of government’s finances,’ he said. ‘I was not told to revise earlier projections regarding the state of the government’s finances by the new government.’
‘The charge of the financial secretary being incompetent is invalid,’ he added.
Former ministers of the People’s Progressive Movement government said they were surprised by revelations in mid-June that government’s operating deficit had ballooned to $74 million.
Mr. McLaughlin has previously said that Mr. Jefferson said nothing during a 5 May Cabinet meeting about budget deficit figures growing out of control. He said during that meeting, the last before the general election, ministers were advised that projections for a $29 million deficit were on track and that the actual operating deficit was $18.8 million as of 31 March.
By 30 April, the deficit figure had grown to $38 million. However, Mr. Jefferson said that wouldn’t have been known when ministers were briefed on 5 May.
Mr. Jefferson revealed for the first time Wednesday that he was not at that 5 May Cabinet briefing, and that an acting financial secretary provided the figures. He also said that individual was never asked whether that $29 million operating deficit figure was realistic.
Generally, Mr. Jefferson said those who were familiar with the government’s budget process would know that the largest revenue earning months are in January, February and March. He said if the previous government knew the actual deficit was $18.8 million at the end of March, they should have expected it to grow well beyond the projected $29 million figure.
Asked why he provided the public statements he did in the 20 March finance committee meeting if he felt the numbers were unrealistic, Mr. Jefferson said it was his job as a civil servant to enforce the policies of the sitting government.
‘We have to work with the government members,’ Mr. Jefferson said after making this presentation to the LA Wednesday.