Economic crisis deepens
The United Kingdom has denied Cayman’s requests for further borrowing and has asked the country to seek sustainable revenues to pay off its debt.
Cayman’s current budget situation requires the overseas territory to obtain approval for any additional borrowing from the UK’s Foreign and Commonwealth Office.
The denial has placed the Islands in a tenuous position. According to Leader of Government Business McKeeva Bush, Cayman is struggling even to pay the salaries of civil servants and is having to borrow tens of millions of dollars a month to do so.
‘The UK is not wanting to allow us to borrow more,’ Mr. Bush told the Compass on Monday. ‘The UK is still saying that a solution has to be found for sustainable revenue.’
Mr. Bush was expected to make a further statement about the situation this morning during a meeting at the Ritz-Carlton, Grand Cayman.
The Compass has learned that employees of some government departments were told earlier this week that additional borrowing capacity would be needed to make sure they received pay in September.
It was unclear whether August pension payments to civil servants would be made. The full 12 per cent of salary contribution did show up on government workers paycheques. However, some department heads indicated they had been told not to submit those amounts.
Financial Secretary Kenneth Jefferson declined to comment about the pension contributions. Government leaders had earlier suggested a year-long ‘pension holiday’ to help save more than $40 million in the current budget year.
Without the ability to borrow more money, Cayman’s government could be forced to take drastic measures to make sure the country stays afloat.
Mr. Bush said this week that Thursday’s meeting was being held to bring leaders from the public and private sectors together to generate cost-saving ideas in the budget government is expected to debate toward the end of next month.
A financial advisor to the G20 group has this week warned Caribbean governments against taking on more debt to put off the effects of the global financial recession.
Avinash Persaud told the BBC news that Caribbean governments should make use of development agencies, like the International Monetary Fund, to boost economic growth.
Cayman is required to seek UK permission to borrow money because it has fallen afoul of at least three principles of responsible financial management as defined in the Public Management and Finance Law.
According to Mr. Jefferson, Cayman is not meeting requirements for the cash reserves it must have on hand, it ended the previous financial year on 30 June with an operating deficit of nearly CI$76 million, and it’s over the limit of public debt it can occur compared to government revenues.
‘The Cayman Islands government must now seek the explicit approval of the Foreign and Commonwealth Office…before incurring further borrowings,’ Mr. Jefferson said in June. ‘This position will continue to be the case until compliance with the principles is achieved.’
Cayman’s projected operating deficit by 30 June 2010 is estimated now at $132 million, without any significant budget cuts or revenue increases.